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Porter’s Five Forces Analysis

Finance
-

Asset Management

Threat of Entry by New
C
ompetitors

Barriers to Entry

Capital Requirements

Customer

Loyalty

Industry Profitability

Ease of Exit

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.

Healthy.

Firms’ return in the range of 30%.

Efficient.

Lack of infrastructure and capital equipment suggest
ease of exit.

High

Threat of Substitute

Propensity to Substitute

Cost of Switching

Perceived Product
Differentiation

Number of Substitutes

Value of Substitute

Low.

Increasing propensity to substitute to alternative
funds.

Low.

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.