The financial services sector can appear as a complex puzzle of many moving parts, which may be incredibly intimidating when first exploring your interest in the industry. When broken down, it becomes quite easy to understand the different components.
Having an understanding of the individual components is essential in order to further explore this exciting and challenging industry! The first article of this series will aim to give that introduction to the financial sector such that you can take the first step to a career in finance.
To begin, Investopedia defines the financial sector as: “Firms that provide financial services to commercial and retail customers… [including] banks, investment funds, insurance companies, and real estate.” You most likely are already familiar with commercial banks—these are the banks where you hold your savings account or apply for a credit card.
This article will focus on the firms that serve the other type of customers: corporate clients.
Buy-side vs Sell-side
Commonly, the financial sector is divided into two distinct divisions: buy-side and sell-side. Under this division, sell-side firms provide services such as investment banking, sell-side research, and trading at banks.
Buy-side firms provide services including private equity, hedge funds, buy-side research, venture capital, and asset management.
Deals vs Public Markets
Mergers and Inquisitions provides another way to examine the financial sector, by separating between firms that work on deals versus those that work in public markets. Under this division, “deals” firms include investment banks, private equity firms, and venture capital firms. “Public markets” include hedge funds, buy-side and sell-side research, proprietary trading, and asset management.
Bulge Bracket vs Middle Market vs Boutique
Yet another way to categorize financial firms, banks in particular, is by looking at the banks’ services provided, geographic reach, and types of deals.
Under this division, bulge bracket banks are the biggest banks in the industry, such as Morgan Stanley, Goldman Sachs, and JP Morgan. These banks are considered the biggest not only because they have many employees, but also because they work on deals over $1 billion, commonly have a global presence, and provide a wide selection of financial services.
One step down the ladder are middle market firms, which still offer the same range of services found at bulge bracket banks. However, these firms on smaller deals, typically ranging from tens to hundreds of millions of dollars.
Middle market firms are also smaller in that they typically have a significant domestic presence but smaller international presence.
The third type, boutique firms, are typically seen as the smallest banks. Boutique firms often focus solely on mergers and acquisitions advising, but the size of deal and geographic reach actually varies quite a bit.
On one hand, many regional boutique firms work on deals under $100 million or even under $50 million and are limited to one geographic region. On the other hand, “elite” boutique firms will have $1 billion deals on par with bulge bracket firms and may have an international presence!
With these explanations, perhaps you can begin to gain an understanding of how firms are generally categorized within the financial world.
Of course, we have only scratched at the surface of this complex industry, and much more detail is needed to explain the functions and services provided by different types of financial firms. What you should take away at this point, however, is that going into finance doesn’t just become a banker at a name brand bank. Rather, there is a type of bank and type of work that fits every interest and every skillset!
Siyu Wu is from Colorado and is currently a sophomore at Princeton University, pursuing a degree in Economics and certificates in Finance and East Asian Studies. She hopes to synthesize her interest in China and East Asia with her passion for finance to eventually work in a career related to international finance and Asian capital markets.