State’s banking industry continues to thrive
An increasingly competitive and dynamic environment, coupled with recent changes in regulatory design, has changed the nature of banking. In response, products offered by banks have expanded to include financial planning and other services. Banks have moved beyond simple transactions to looking at their customers holistically, providing one stop for all of a customer’s financial needs. And as the financial needs of businesses increase, the demand for financial services continues to grow. Financial activities have been a very strong contributor to the New Hampshire economy, with employment in the financial sector rising steadily in the state, seemingly unaffected by the recession of 2001. Steady job growth is an indicator of a healthy industry whose products are in great demand. According to the Fall 2005 New Hampshire State Profile from the Federal Deposit Insurance Corp., the Granite State’s banking institutions remained profitable through the second quarter of 2005. Earnings have been increasing, and low delinquent loan rates point to loan quality remaining strong. In Manchester, financial services are a significant contributor to the local economy. There were 376 private finance and insurance firms operating in the Manchester labor market area in 2004, employing 6,419 people. The average weekly wage paid by finance and insurance firms in Manchester in 2004 was $1,203 — almost 50 percent higher than the average weekly wage for the Manchester area. The financial services industry has undergone significant change over the years, particularly in the last decade, and continues to evolve today. Financial planning - a distinct element within the spectrum of financial industry services - is still relatively young. But it is an increasingly important part of the service mix as New Hampshire consumers and businesses seek to maximize the potential of their hard-earned money. Financial planning, whether for businesses or individuals, has only recently emerged as a distinct industry sector. Years ago, in a highly regulated financial sector, financial services were distinct from one another. If you needed to save money or get a loan, you visited a bank. Stocks and bonds could only be acquired from a broker. Insurance agents sold only insurance. And mutual funds were purchased from a mutual funds sales representative. The regulation of the industry reflected the division of these transaction-based services, commonly referred to as the “four pillars.” As financial services were deregulated, competition increased in every distinct marketplace. Financial services vendors also saw a need to move beyond transaction-specific advice and offer their customers a more comprehensive, or holistic, approach to their financial needs. Over the last 10 to 15 years, the distinctions among the pillars have faded. Recognizing the market demand for more holistic service and specifically more holistic advice, the industry players have seized the opportunity to expand beyond their original turf. Most now offer a mix of products and services. Financial planning is one such service. Professional financial planning takes a holistic approach to an individual’s financial life. A qualified financial planner will consider a client’s goals, stage in life, personal circumstances and risk tolerance. As New Hampshire banking continues to evolve with the changing marketplace, the outlook for banking is very bright indeed. Dennis Delay is an economist. This article originally appeared in the December 2005 issue of the Greater Manchester Chamber of Commerce’s Economic Insight newsletter.