11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

Get 40% Off Your Me

Sign up and unlock the skil
career move.

Home › Resources › Career › Financial Institutions Group

(FIG)

Financial Institutions Group (FIG)

A group of professionals that provide advisory services to financial
institutions

Over 1.8 million professionals use CFI to learn accounting, financial analysis,
modeling and more. Start with a free account to explore 20+ always-free
courses and hundreds of finance templates and cheat sheets.

Start Free

Written by Scott Powell

What is the Financial Institutions Group (FIG)?

The Financial Institutions Group (FIG) is a group of professionals that
provide advisory services to financial institution clients. Some of the
services that the FIG offers include mergers and acquisitions,
recapitalization, capital raising, financial restructuring, corporate
valuations, expert financial opinions, and other advisory services.

Companies that may represent prospective FIG clients include

investment banks and companies that provide financial services to
businesses, banks, asset management companies, brokerages, and Help
insurance companies. Investment banks sometimes categorize their
areas of expertise under the FIG into a financial services group and an

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 1/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

insurance group, with the aim of providing tailored services to their

clients.

Unlike other companies that profit from selling physical products, FIG
companies make money by borrowing money cheaply and lending it
expensively. Companies in the Financial Institutions Group are in the
business of moving money around in the form of deposits, loans, and
money markets; hence, a significant proportion of their revenues and
expenses are in the form of interest income and interest expense,
respectively.

For example, the profit and loss account for a deposit bank comprises
large values of interest expense and interest income, and little or no
entries for the cost of goods sold or depreciation. Since Financial
Institutions Group capital mainly comes from individual clients, there are
restrictions on the type of assets and their quantities that can be held.

Types of FIG clients

Depending on the exact nature of its business, the Financial Institutions

Group (FIG) works with the following types of companies:

1. Banks

Banks are institutions that accept cash deposits from the public through
saving accounts, current accounts, money market accounts, certificates

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 2/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

of deposit, and call deposit accounts. Banks hold the deposits and pay a
little interest. They then use the deposits to lend out loans to borrowers
at a significantly higher interest rate than the rate offered to depositors.

For example, a bank might offer depositors an average interest rate of

2%, while charging borrowers an average rate of 7%. On average then,
the bank would make a 5% profit (7-2=5). This is, of course, a very
simplified example, not taking into account the costs of doing business,
the exact difference between the total amount of money the bank loans
out and the total of deposit accounts, and varying interest rates paid out
or earned on different types of loans and accounts.

Apart from customer deposits, banks may also fund their lending
activities using wholesale funding from the government, capital markets,
and other financial institutions. The government lends to banks through
central banks, while large institutional customers – such as endowment
funds and pension funds – may provide long-term funding in return for
higher annual interest earned.

Most banks shy away from wholesale funding because it is a sign that
the bank is not as competitive as other banks and may be going through
financial distress. Also, wholesale funding is more expensive than other
sources of revenue, and the bank will need to settle for a reduced
interest spread.

Another source of revenue for banks is share equity. Banks raise equity
capital by selling shares to outside investors and paying a dividend in
return. Since equity capital is expensive, it is typically only issued when
the bank is in financial trouble or needs funds for an expansion or
acquisition. Banks may make the shares callable so they can repurchase
them at some point in the future when their capital position has
strengthened or improved.

Interest income from loans makes up 50% to 70% of the total revenues
earned by banks. Other interest-earning assets that banks invest in may
include mortgages, stocks and bonds, commercial financings, and
proprietary trading.

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 3/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

Non-interest income makes up 25%-50% of total revenues and is mostly

comprised of fees charged for services. For example, some banks charge
lending and deposit fees, ATM use fees, and ledger fees. Banks often
generate considerable revenues from interest and fees charged on credit
cards it issues.

2. Insurance

Insurance companies make money in two primary ways – earning

premiums from selling various types of policies to individuals and
businesses and investing the premiums they receive in interest-
generating assets. The difference between the amount of money
collected when selling policies and the amount paid out as insurance
claims is the underwriting income.

For example, if an insurance company collects $1 million in premiums

and pays out $600,000 in insurance claims, it makes a profit of $400,000.
However, if the claims amount to $1.2 million, the company will have
incurred a loss of $200,000. In normal circumstances, insurance
companies collect huge sums of money annually, and they may not have
to pay claims on those policies for years.

Insurance companies also earn investment income by investing the

money they get from selling insurance products before paying for claims.
They use the revenue they receive to invest in bonds or equities so they
can make a profit before having to pay for claims.

Sometimes, insurance companies can charge their products

competitively so they can receive more premiums than their competitors
and then invest those funds in the stock market. The proceeds from
invested funds allow insurers to continue insurance operations even
when underwriting losses may occasionally exceed the premiums
collected.

The most common financial instruments that insurance companies

invest in include Treasury bills, high-grade corporate bonds, and interest-
generating cash equivalents.

3. Asset Management

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 4/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

Asset management companies earn income by investing money for

individuals and institutional investors such as pension funds and
university endowment funds, in return for a fee. They allow investors to
have more diversified investment options than they would if they made
the investments themselves. By pooling assets, investors can avoid
minimum capital requirements that are placed for individual investors,
and invest in large sets of investments with a smaller amount of capital.

Asset managers charge two types of fees – management fees and

performance fees. The management fees are paid as a percentage of the
total assets under management, irrespective of the performance of their
investments. Performance fees are calculated as a percentage of the
returns earned by the asset manager beyond a specifically
predetermined benchmark.

For example, assume that ABC manages assets worth $10 million and
charges a management fee of 2%. ABC will earn $200,000 from this. If
the value of assets under management (AUM) rises to $12 million as a
result of ABC’s investments, then ABC will additionally receive a
performance fee of $40,000 (performance fees are typically 20% of
profits). In total, ABC will earn $240,000 from the client.

Asset managers review the AUM figure to quickly determine whether or

not the assets are growing or shrinking. Whether the AUM is growing or
shrinking is determined by the investment gains/losses, organic flow,
and acquired flows. Organic flow is the value of assets taken out of the
asset manager’s control by the client, while acquired flows represent the
assets added or acquired from other asset managers.

Additional Resources

Thank you for reading CFI’s guide to the Financial Institutions Group. To
learn more about the financial services industry, check out the following
resources:

Top Banks in the USA

Big Four Accounting Firms

Top Investment Banks

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 5/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

Top 10 Private Equity Firms

See all career resources

See all capital markets resources

Share this article

We're hiring!

Company

Certifications

Courses

Support

Resources

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 6/7
11/20/23, 8:01 PM Financial Institutions Group (FIG) - Overview, Types

   

© 2015 to 2023 CFI Education Inc.

Privacy Policy Terms of Use Terms of Service Legal

https://corporatefinanceinstitute.com/resources/career/financial-institutions-group-fig/ 7/7