The investment services industry comprises of banks, credit card companies, insurance companies, investment bankers, security traders, financial planners and security exchanges.

The 1920’s saw the Great Depression which originated with the crash of Wall Street. The hardest hit were heavy industries, which were pre dominant at that time.

The 80’s saw the biggest stock market crash of all time. It started in Hong Kong and spread to other nations. The 1990’s saw the great Asian crisis, which originated in Thailand. Despite having a huge debt, Thailand chose to float its currency leading it into financial ruin. This impacted the whole of South East Asia adversely. The 2000’s saw the dot-com burst, with several millions of dollars put behind non-profitable ideas.

The year 2007 saw credit markets face large scale default on loans. This led to the Financial Crisis of 2008 – 2009. This has resulted in the bankruptcy. It has seen the bailouts of Lehman Brothers, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Merrill Lynch, Wachovia, Northern Rock, Lloyds TSB, HBOS, RBS and the entire banking system of Iceland.

These crises generally saw reduced growth rates and tighter regulations.

One of the important Acts put into place in 1933 post the Great Depression was the Glass Stegall Act (GSA). This Act separated investment and commercial banking activities. Excessive imprudent commercial bank involvement in stock market investment was considered the cause of the financial crash. It was felt that banks over-speculated with depositors' money.

The GSA set up a regulatory barrier between commercial and investment bank activities. Banks were given a year to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities. The exception was that commercial banks were allowed underwrite government issued bonds. For example JP Morgan and Company, was forced to cut their services and, thereby, a main source of their income. By creating this barrier, the GSA was aiming to prevent the banks' use of deposits in the case of a failed underwriting job.

Critics of the GSA said allowing banks to diversify moderately helped reduce risk.

After the debacle of Enron it was expected banks would be more transparent with better checks and balances in place, preventing imprudent investment decisions.

In keeping with this line of thought the GSA was repealed in 1999. In its place the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks was established. This Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities.

As a result of the repealment of GSA financial institutions could convert themselves into ‘financial supermarkets’. Individual as well as institutional clients formed its customer base. To service them these companies were divided into divisions.
<ul>
	<li>Investment Banking</li>
	<li>Venture Capital / Private Equity</li>
	<li>Sales Division</li>
	<li>Trading Department</li>
	<li>Research Department</li>
	<li>Technology</li>
	<li>Operations</li>
	<li>Money Management</li>
	<li>Wealth Preservation</li>
	<li>Retirement Planning Department</li>
	<li>Trust Company / Bank</li>
	<li>Derivatives Department</li>
	<li>Compliance Department</li>
</ul>

A Brief History of Investment Services Industry

The investment banking department helps corporates and government clients in key financial strategic decisions. It helps corporates who are looking at raising funds from the market for expansion. In this event it helps the company assess the amount of funds it is looking at mopping up from the market. Based on this the company would go for a public offering or private placement. In public offering the company would offer stock to the public. In private placements, accredited investors would be sought.

In the case of public offerings the investment bank would help the corporate determine if they should sell large number of stocks to few investors or a small number of stocks to many.

It would help determine the pricing of the stock and placements. (Countries those were eligible to buy the stock).

If a public sector company were looking at disinvesting non-core divisions it would employ a investment bank to seek buyers for these divisions.

Since these decisions are both of high risk and value to the concerned parties the credibility of these banks and their teams are duly considered. These teams usually are composed of highly trained professionals from management, law and finance. They usually undergo training in best practices before they are put before a client. Investment banks are increasingly looking at hiring students from different geographical backgrounds in order to help companies that are increasingly becoming global.

Investment Services: Investment Banking Department

Although venture capital is said to have existed for many years, General Doriot is considered to be the founder of the modern venture capital industry. In 1946, Doriot, a former dean of Harvard Business School, founded the American Research and Development Corporation (ARDC) with Ralph Flanders and Karl Compton (former president of MIT). It aimed to encourage private sector investments in businesses run by soldiers who were returning from World War II. ARDC was significant because it was the first institutional private equity investment firm that raised capital from sources other than wealthy families. One of its success stories was a $70,000 investment in Digital Equipment Corporation (DEC) which would be valued at over $355 million after the company’s initial public offering in 1968.

Venture Capitalists in 1960’s focused their attention on breakthrough technologies in electronics, medical technology and data-processing. It helped launch many familiar brand names, including Apple, Cisco, Compaq, Electronic Arts, Federal Express, Genentech, etc. The 70’s saw a further rise in Venture Capitalists. This slowly started to reduce due to competition, IPOs, and foreign competition. The 1990’s saw a consolidation.

The1990s saw investors show interest in Internet businesses and other computer companies. Some winners included Amazon, e-Bay, Intuit, Netscape, Sun Microsystems and Yahoo! Duds that were funded were pets.com, eToys, among others. This led to a further shrinking of the venture capital industry due to heavy losses, write-offs and closures.

The financial crises of 2007 has further dampened the VC industry. This has led to drying up of capital. The increasingly global nature of start-ups has seen competition moving from largely domestic (Silicon Valley vs Boston-both high-tech industry areas), to anywhere in China or India. This requires a globally aware breed of Venture Capitalists.

This said, Venture Capitalists or VCs as they are often known look at funding the next big idea. This requires sound analysis of the company’s stream of revenue and growth plans. The firm invests its own capital and that it raises from investors. Typically these investments place the venture capitalists as investors with a stake in the company.

In start-ups, VC’s usually play mentor roles for a period of 5-10 years before exiting. Their presence helps in setting up processes and further getting funds from the market. VC’s who help fledgling businesses are called incubators. They take advantage of economies of scale and offer skills and experience that might be lacking or out of reach in financial terms.

While start-ups offer an exit to the VC in 5-10 years, in the case of incubators it can be in 2-3 years.

Business Angels (Angel investors) help fledgling businesses with a more hands on role, offering advice and putting in lesser money as investment. Their role is invaluable in helping companies reach their goals, with their offer of management advice, introductions and other practical experience.

Venture Capitalists also help businesses that are looking at investment to grow and expand their businesses, and not only at the start-up stage.

In the US and UK multiple exit options for VCs are available, enabling easy availability of VC funds to start-ups and growing businesses.

Investment Services: Venture Capital Firms

The sales department is responsible for marketing the various financial products to the customers. They service private, institutional or independent families, banks, pension funds etc.

The private client division advises individuals on their financial objectives and how to fulfill them. They market various products that cater o these needs. They are known as investment advisors, financial planners or financial advisors. Services include:

Market information: Earlier brokers were privy to information such as price quotes on securities, financial data and market data. Several TV channels and the internet cater to that same need today.

Transactions implementation: In the past brokers took buy and sell order from clients and executed them. Today online details allow a client to make decisions. Transactions are then conducted by brokers.

Research and Advice: Industry reports, analysis, outlook were earlier accessible and proprietary information of brokerage firms. Today there is an explosion of information on the web. Investors can research firms, discuss online with other investors, chat with experts before they take a call.

In turn brokers use this information to present clients with product options. They can also use this to develop new products.

Product Access: Clients of a particular firm are given preference for IPO’s which the firm is handling. They also get first access to their proprietary products and services.

Investment Services: Sales Department 

<h3>Institutional Client Division</h3>
Corporates, Insurance companies, large banks and pension funds also seek the services of investment banks. Usually a salesman handles one/few accounts. These client service professionals are the best in the team, as they are handling large high value clients. Excellent analytical, networking and communication skills are required for this profile.

Smaller but independently high net worth entities like trust funds, smaller banks and trust funds are often treated as mini-institutional clients.
<h3>Trading Department</h3>
Stock trading involves taking buy and sell orders from clients. There are two methods to execute a trade. This can be done on the trade floor or electronically.

For example, a broker on the floor takes a buy order from a client. The broker then sends the order to the floor clerk at the exchange. The floor clerk alerts one of the firm’s floor traders who finds another floor trader floor trader who knows which floor traders make markets in particular stocks.

The two agree on the price and complete the deal. The notification process goes back up the line and the broker calls the client with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, an e-mail confirmation is sent.

Electronic trade uses technology to match buyers and sellers, rather than human brokers. Institutional traders prefer this method of trading.

Individual investor, use this method to get instant confirmations on trades. It gives the investor more control of online investing by putting   them closer to the market. The broker then accesses the electronic markets, and finds a buyer or seller depending on your order.
<h3>Research Department</h3>
This department consists of economists, equity market strategists, industry analysts, fixed income market analysts and credit analysts.

With the global nature of investment economists monitor and provide information about different world economies. They also try to forecast economic indicators such as interest rates, wage levels, unemployment levels, and growth levels and so on.

Equity market strategists take calls on the market as a whole. They analyze market sector growth levels and market performance. Industry analysts analyze specific industries and predict growth of the sector and companies within it.

Fixed Income Market Analysts asses the fixed income market (where securities like bonds-bills and preferred stock are traded) this market is characterized by low-risk and low return. These analysts help pick the best performers and provide information on the same.

Credit Analysts assess financial data of companies when it issues bonds. They assess credit quality using ratios, trend analysis as well as the creation of projections and a detailed analysis of cash flows.

Financial analysts in investment banking departments of securities or banking firms analyze the future prospects of companies that are going in for an initial public offering or IPO. They undertake compliance to regulation tasks. They also manage events to attract investors. Another key role is to work in mergers and acquisitions. They help pick prospective companies that can be acquired or undertake financial analysis in mergers. Some are buy-side analysts and some are sell-side analysts.

They also rate risk in some cases and are then called rating analysts. Rating is often done to company or government bonds.

Investment Services: Institutional Clients, Trading and Research Departments

<h3>Technology Department </h3>
Technology is changing the face of the securities industry. It pervades all areas of this industry now. It enables greater efficiency, transparency for investors with more in-depth information, transparency of market data which is no longer the prerogative of few.

It helps increase efficiency by minimizing the time and resources for routine administrative tasks, and improving data consistency and work flows. In trading it helps optimize use of assets.

Technology is also helping build networks of data, market participants and the expertise generated therein.

Key areas of software application include Market Analytics, News wires, Data feeds and Customer data.

Data feed: A data feed is a mechanism of receiving live data from multiple sources to execute trade orders.

News wires: Web feeds are the common format. Bloomberg, Associated Press, United Press International and Reuters are some of the major news wires. These news wires keep researchers and brokers up to date with news and developments around the world. These in turn determine their decisions.

Market Analytics: This includes analysis of the customer data covering marketing research, marketing strategy, and marketing plans. The objective of a marketing analysis is to identify the general interest of the buying public and understand the growing changes and possible threats of the company as they relate to the strong and weak points of the business in the industry. It studies market size, market growth rate, market profitability, industry cost structure, distribution channels, market trends, and key success factors. Proprietary software enables securities firms do this.

Client data: Customers choose to keep close tabs on their accounts. Companies have to provide this information on a minute to minute rather than once in a quarter or year.

Technology has become a key differentiator in the business.
<h3>Operations Department</h3>
With settlements becoming almost real time, it is important the back end of the business be strong. Companies have expanded their portfolios, and the Internet has got settlements to real time. Information is easily available. Minimum bottlenecks and impediments in the operational processes of the firm enable better client servicing. Workflow management softwares help brokers in processing, trading and settling.

Investment Services: Technology and Operations Department

Money Management Department

In order to meet the specific financial goals of high net worth investors, investment services companies offer their money management services. Investors could be individuals or institutions. This department undertakes asset selection, stock selection, plan implementation and ongoing monitoring of investments. It is increasingly becoming a large and important global industry.

Wealth Preservation

Wealth transferred from generation to generation is subject to estate taxes. To prevent this erosion the wealth needs to employed/invested in avenues that keep the capital working. So wealth preservation includes estate planning and financial planning. Security companies are offering this service.

Retirement Planning Department

Since individuals have limited working lives, they look for services to plan for their retirement. Thy look for financial instruments and advice to ensure an income post their working years. Financial advisers help achieve this goal.

Trust Fund Management

Companies and families form trust funds. To oversee and manage this fund is a task given to investment services companies. Evaluations of assets, buying and selling of assets and overseeing disbursements are few of the functions of this department.

Investment Services: Money Management

Investment Services Industry

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COURSE

Investment Services Industry

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