We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What are Financial Intermediaries?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 7,911
Share

Financial intermediaries are entities that function as the line of communication between investors and firms that are seeking investors. Functioning as a middleman, an intermediary seeks to match investors who have specific financial goals with investment opportunities that can aid in the achievement of those goals. In most cases, the financial intermediary is a financial institution, such as a bank or an insurance company. Financial intermediaries also come in the form of mutual funds, pension plans, and broker-dealers.

There are several advantages associated with the use of financial intermediaries. One has to do with minimizing the degree of risk associated with the investment process. This is due to the fact that intermediaries often diversify the types of investments they undertake. This creates a situation where there is less risk for the individual investor, since the intermediary is able to offset losses with greater ease than a lone investor could manage. For example, the single investor could only underwrite a limited number of loans, and would be affected substantially by the failure of one of those loans. By contrast, a bank can underwrite many more loans, and can offset losses from a defaulted loan with greater ease.

Another benefit to financial intermediaries is that much of the research needed to assess an investment opportunity has already been done. This saves the investor time and money, while also reducing the potential for making a bad investment. Since intermediaries tend to be proficient in such investment options as lending or purchasing shares of stocks, the chances that the investor will lose money on the transaction are lower, while the opportunity for returns is higher. As a bonus, intermediaries can also function as central counter-party clearing houses, creating and managing the investment transactions for all parties concerned.

Financial intermediaries also have the ability to maintain a high degree of liquidity. This is important for investors, as it means the intermediary can convert assets to cash without delay. For example, an individual with a savings account at a local bank wishes to withdraw funds from that account, there is usually no delay, even if the withdrawal is substantial. The only situation in which financial intermediaries may be unable to quickly supply the cash is when a huge number of depositors or investors wish to withdraw their assets at one time. Even then, many national banking systems can intervene and prevent the need for suspending payments to depositors.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-are-financial-intermediaries.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.