Porter’s Five Forces Analysis
Finance- Asset Management
Threat of Entry by New Competitors
Barriers to Entry
Capital Requirements
Legal barriers. Prestige barriers. Hard to attract enough
hundreds of clients to breakeven.
High. Breakeven point requires tens to hundreds of millions of
dollars assuming average industry fees.
Low.
Customer Loyalty
Healthy. Firms’ return in the range of 30%.
Industry Profitability
Ease of Exit
Efficient. Lack of infrastructure and capital equipment suggest
ease of exit.
High
Threat of Substitute
Propensity to Substitute
Low. Increasing propensity to substitute to alternative
funds.
Low.
Cost of Switching
Perceived Product
Differentiation
Number of Substitutes
Value of Substitute
Moderate
Few. Investment banks or insurance companies can provide
the products that the baby boomers desire: managed risk
and principal protection.
Varying.
Low
Bargain Power of Suppliers
Cost of Switching of
Supplier
N/A
Impact of Input on Revenue
N/A
Presence of Substitute
Inputs
N/A
Strength of Distribution
System
N/A.
Ability to Forward Integrate
N/A
Supplier Concentration to
Firm Concentration
N/A
N/A
Bargain of Buyers
Buyer Concentration to Firm
Concentration
Moderate. Buyers are becoming increasingly
institutionalized.
Information Available
High. Internet, especially firms like Morningstar,
has made information widely available.
Buyer Price Sensitivity
Moderate. Most asset management firms charge
around the same.
Differential Advantage of Products
Moderate. Many fund proliferations however,
broad generic products outperform these
specialized products.
Availability of Substitutes
Low. Traditional banks, insurance companies, and
investment banks are amongst the few
substitutes.
Buyer Volume
Varying. Institutions can invest varying sums of
money.
Moderate Bargain Power of Buyers
Rivalry
Exit Barriers
Low.
Industry Concentration
High. Big names still dominate a lot of the assets in
industry.
Product Differentiability
High. Unfortunately, specialized products offer
significantly less return than broad based products.
Competitive Advantage
Difficult to maintain. In the long run it is difficult to out
perform market, especially taking into account of fees.
Excellent managers are poached by competition.
High Threat of Rivalry
Conclusion
• Despite the fairly competitive nature of the
asset management industry, it remains fairly
robust due to the high barriers to entry and
relative lack of substitutes. The growing
demand for asset management by changing
demographics will suggest opportunities to
profit. Entry into the fairly profitable industry
will be the hardest challenge.