Ameriprise Financial (AMP) is a diversified financial services company. The company was incorporated in Delaware in 1894 and is currently based in Minneapolis, Minnesota. The company provides services in estate planning, wealth management, asset management, and insurance. Its primary business segment is wealth management, from where it draws the majority of the revenue. The company has three principal subsidiaries Ameriprise Financial Services, RiverSource Life Insurance Company, and Columbia Threadneedle Investments.
The company is among the 25 asset managers globally and is ranked 27th in the global assets under management. AMP has more than $900 billion in assets under management and advice; moreover, it maintains a leadership position in its core business: Advice & Wealth Management, Asset Management, Annuities, and Protection (Ameriprise, 2021). Porter’s five forces analysis is a valuable tool to assess the business and financial risk AMP is exposed to in the global financial services sector.
Competitive Rivalry in The Market
The financial services market is considered to be intensely competitive. AMP’s business domain is very competitive because of the presence of mega organizations operating in the sphere. In the securities market, its major competitors are Lincoln National, JPMorgan Chase, and Morgan Stanley. AMP reported revenue of $11.9 billion and earned a profit of $1.5 billion, with a 12.8% ratio of profit on revenue (Fortune, 2021). In 2020, Lincoln National has reported a revenue of $17.4 billion and earned a profit of $0.4 billion (Fortune, 2021).
In the same fiscal year, JPMorgan Chase reported revenue and profit of $129.5 billion and 29.1 billion, respectively (Fortune, 2021). During that period, it was also ranked at 19th place in the Fortune Global index. Morgan Stanley has reported a revenue of $52 billion and made a profit of $10.9 billion (Fortune, 2021). Therefore, The US wealth management landscape is highly competitive.
Threat of Substitutes
The threat of substitutes is considered moderate in the industry. The threat is high in better alternatives, low switching cost, and acceptance of the alternative in the target market. In the US, traditional financial services companies are facing a severe challenge from uprooting fintech companies. These companies pose to use the vacuum in the industry and automate the monotonous task by leveraging technology. A massive 77% of the wealthy manager reported a loss of business due to the unavailability of better tools during pandemic (Business Insider, 2021).
Traditional wealth managers are facing serious threats from the wealth tech companies. However, traditional institutes still have a strong foothold in the market owing to their long presence in the market and existing customer base. They are evolving by either acquisition or generic growth. Therefore, the threat remains moderate in the short term.
The Threat of New Entrants
The threat of a new entrant is considered to be minimal in the short-term horizon. There are industry-specific caveats that deter most aspirants. These include a high capital requirement, well-established incumbents, regulatory framework, and growth potential. The severe caveat for most new businesses is financing the operations; now, most companies are fintech due to the change in customer preference. The available financing options partially mitigate the high capital problem.
In the US, fintech companies are raising funds quite strongly, and the majority of it is going towards companies operating in the segment of investments and capital markets technology (Mason, 2021). However, other threats remain valid as there is stringent compliance requirement in the US. The incumbents are sitting well on top with in-depth market insight. Thereby, the threat remains low for the short-term period and moderate in the medium term.
Bargaining Power of Buyers
Traditionally, the consumer had moderate to high bargaining power; scales have now tipped even more in favor of the consumer. Consumer power is directly proportional to the conditions of the industry. The factors include market competition, consumers’ concentration, available alternatives, and the switching cost. There is intense competition, and fintech companies have crowded the saturated market.
A digital acquaintance has made the consumer more updated, and they value convenience more than anything. Thus, companies are competing to acquire customers and retain them. Another matrix that customers care about is better customer service; it important to determine their decision to stay or move on from the business. Service quality is an important determinant for the buyers, and with the available alternatives, they have high bargaining power (Bedi, 2010). The low-switching cost allows the consumer to exit anytime if they remain unsatisfied. Therefore, buyers have higher bargaining power.
Bargaining Power of Suppliers
Usually, suppliers have moderate bargaining power in the industry. The bargaining power is high if suppliers’ are concentrated, the supplies are important, there is a risk of forwarding integration, and suppliers are industry dependent. Important supplies in the wealth management business are institutional investors, retail clients, high net-worth individuals, and financial experts. Institutional investors have higher bargaining power as they bring in large sums of money and expect a higher rate of return.
These investors can invest within the industry with other businesses or in other industry giving them higher leverage. When suppliers are industry-independent, they can bargain higher prices for their products (Reichenbachs, 2017). Retail investors have moderate bargaining power because of market competition, and they can invest with someone else. However, Human resources are available in abundance, therefore, rendering low bargaining power. Therefore, suppliers’ have moderate to high bargaining power.
References
Ameriprise. (2021). About. Our Company. Available at: https://www.ameriprise.com/about/our-company
Bedi, M. (2010). An integrated framework for service quality, customer satisfaction and behavioral responses in indian banking industry – a comparison of public and private sector banks. Journal of Services Research, 10(1).
Business Insider. (2021). Wealth Management Ecosystem 2021: Industry trends, stats, and firms undergoing digital transformation. Available at: https://www.businessinsider.com/wealth-management-ecosystem
Fortune. (2021). Ameriprise Financial. Available at https://fortune.com/company/ameriprise-financial/fortune500/
Fortune. (2021). JPMorgan Chase. Available at https://fortune.com/company/jpmorgan-chase/fortune500/
Fortune. (2021). Lincoln National. Available at https://fortune.com/company/lincoln-national/fortune500/
Fortune. (2021). Morgan Stanley. Available at https://fortune.com/company/morgan-stanley/fortune500/
Mason, T. (2021). US fintech funding still going strong, following 20% jump in 2020. Available at: https://www.spglobal.com/marketintelligence/en/news-insights/research/us-fintech-funding-still-going-strong-following-20-jump-in-2020
Reichenbachs, M., Schiele, H., & Hoffmann, P. (2017). Strategic supply risk: exploring the risks deriving from a buying firm being of low importance fo its suppliers. International Journal of Risk Assessment and Management, 20(4), 350-373.