1. Porter’s Five Forces Analysis
Finance- Asset Management

2. Threat of Entry by New Competitors
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.
Barriers to Entry
Capital Requirements
Customer Loyalty
Industry Profitability
Ease of Exit
High

3. Threat of Substitute Propensity to 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.
Propensity to Substitute
Cost of Switching
Perceived Product Differentiation
Number of Substitutes
Value of Substitute
Low

4. Bargain Power of Suppliers
Cost of Switching of Supplier
N/A
Impact of Input on Revenue
Presence of Substitute Inputs
Strength of Distribution System
N/A.
Ability to Forward Integrate
Supplier Concentration to Firm Concentration
N/A

5. 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

6. 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

7. 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.