Fee-Based Services – Meaning & Advantages

Introduction

Also called Non-Fund Based services. Here, the financial institution does not lend money. It lends its Brain (Expertise) or Brand (Guarantee).

1. Why Fee-Based?

• No NPA Risk: Since no money is lent, there is no risk of default.
• Steady Income: Fees are earned upfront or on success.
• Client Relationship: Helps cross-sell other products.

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2. Examples

1. Issue Management: Helping co's launch IPO.
2. M&A Advisory: Corporate Counseling.
3. Letters of Credit / Guarantee: Bank guarantees payment to third party. (Technically a non-fund commitment).
4. Stock Broking: Earning brokerage.
5. Custodial Services: Safekeeping assets.

Summary

• Motto: "Advice is Money".
• Risk: Low financial risk, High reputation risk.
• Trend: Banks prefer this to improve "Return on Assets" (RoA).

Quiz Time! 🎯

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