Why the Financial Sector Loves Other People’s Money

Other People’s Money (or OPM) is exactly what it says on the tin – money that belongs to other people and in this post I’m going to explore just why the financial sector loves it so much. I’m pretty sure you can already figure it out all by yourself, but it always helps to have the point of view of someone who is essentially on the “inside” to perhaps give you a little bit of a different view – an insider’s view if you like.

Direct Access to Capital

So what is perhaps the most obvious reason why the guys over in the finances just love OPM is indeed because this affords them direct access to some colossal levels of capital, capital which they can use to generate some profits for themselves and capital which they otherwise wouldn’t have access to. Nobody really has any other way of accessing so much capital, which is why the financial sector is as heavily regulated as it is.

Financial Sector Industries which Use OPM the Most

If you were to guess that the commercial banks assume the form of financial sector institutions which make the most extensive use of OPM, you’d probably be right, but this has only become true in recent times. Not too long ago it was some of the other types of businesses in the financial sector that made the biggest use of OPM, such as the likes of insurers. I mean do you think insurance companies grow into multibillion dollar corporations through the marginal profits they make charging insurance premiums in addition to the many claims they never go on to pay out?

They have a lot of staff on their payroll and they spend a lot of that money on advertising too (you probably never go a day without coming into contact with some or other form of insurance advert), so the average insurance company could never survive solely on the service of offering insurance. Insurance companies make their money by investing this OPM they collect in the form of premiums, putting it into so-called no-risk/ low-risk investments which all but guarantee returns for them.

That’s why insurers or any other players in the financial sector hire the very best lawyers money can buy – they want to make sure that whatever it takes, they enjoy what is essentially utilising their licence to print money!

OPM Investment Channels

While the average person on the street doesn’t quite need the type of money financial sector companies have access to to perhaps hire the same lawyers those financial sector companies use, it’s what these lawyers are commissioned to do for them which comes under the spotlight. They basically just make sure these companies operate within the law while pushing those legal and regulatory boundaries to maximise the profits they make from investing their clients’ monies. Simply put, the typical insurance company will push the legal and regulatory boundaries to their limits so that they can enjoy the privilege of investing the money you contribute as premiums into something like the stock market, making hedged bets which all but guarantee profits for them, all while hoping you never file a claim.