Financial Services Industry-Wealth Management
The financial services industry refers to services rendered by financial institutions to its customers, either commercial or retail, ranging from banks, Investment funds, credit-card companies, wealth management companies, stock brokerages, insurance companies and real estate (Divanna, 2002). The Gramm-Leach-Billey Act of 1999 gave banks the right to venture into other areas of financial services which were previously off limits. Thus the financial services industry is a direct result of this act.and wealth management of financial service industry also determine. The law saw many banks merge; acquire other financial institutions while others created new divisions to diversify their operations (Divanna, 2002). Banks make up the largest component of the financial services industry. Recent times have seen a revolution in the services offered by banks either private, commercial and now investment banking. This industry is vibrant and a vital driver of economies.
With new entrants into the market almost every year, the banking sector remains very competitive. The latest phenomenon in the industry is called Money Center Banks. These institutions have expanded their services from the traditional banking services into investment banking, asset management, and brokerage services, thus earning themselves the title “one-stop-shops.” The future of financial services is highly dependent on technology. Being a sensitive industry, security is of the essence. Overcoming the complexity of new applications holds great potential for the industry.
Merrill Lynch is a wealth management institution under the Bank of America. At the height of the great recession of 2008, Merrill Lynch & Co was acquired by the Bank of America. In 2013, it was merged into the Bank of America Corporation. The firm employs 15,000 financial advisors and manages over $2.2 Trillion of clients assets (Back of America, 2016). The firm’s rise to prominence is attributed to the strength of its brokerage network and a vibrant sales force. The firm’s vital services are; financial management, financial advice, and investment banking services. The firm has won numerous awards. It was ranked Number 1 in Barron’s Top 1000 Advisors and first also in Barron’s list for most advisors with Number 1 ranking in their state in both 2009 and 2010.
The company’s years of success can be attributed to the thorough planning and consideration of the firm’s business environment through a SWOT analysis and five forces according to Porter’s (Hill & Westbrook, 1997). By virtue of years of experience, Merrill Lynch has been able to identify its internal strengths and weaknesses placing it in a strong position to combat external threats and grab opportunities. The company is also able to understand its position in the industry through Porter’s five forces analysis.
Merrill Lynch Wealth Management is a private banking and investment group which was founded in 1914 and has its headquarters in New York. It offers an array of customized wealth management products and services that range from brokerage, financial advice, and planning, etc. It offers structured wealth management services to high-net-worth individuals to help them meet their financial goals.
-Merrill Lynch Wealth Management has a strong brand name build over many years placing it in a powerful position globally.
-Merrill Lynch is an established leader in global wealth management due to the wide range of services and personalized products offered.
-The firm has a highly skilled workforce of over 15,000 around the world making it the world’s largest brokerage.
-The size of resources and revenue speak for themselves making it easy for the firm to diversify in products, services, and presence in other countries.
– Merrill Lynch is not a believer in online trading. The firm’s resistance to internet trading can be attributed to the fact that it would mean reduced revenue in brokerage commissions. Internet trading would eliminate brokers who bring a lot of revenue.
-High commissions in transactions is a headache for the customers. Acquiring the same assets online costs the customer much less.
-Mergers and acquisition- Bank of America acquisition of Merrill Lynch gave it access to a million new customers.
-Partnership with MIT-the five year contract between the two allows the firm to run new financial engineering technology which will be a considerable advantage to the firm as well as acquiring new clients, wealthy MIT graduates.
-Changing government regulations and financial crisis like recession-clients would be scared of putting their money under a financial advisor
-Stiff competition- smaller advisor groups could be more attractive to customers compared to the establishment
PORTER’S FIVE FORCES ANALYSIS
Bargaining power of Suppliers
The dominance of the suppliers is high; the demand for the service lowers. This affects the firm’s profits adversely. Creation of brand loyalty with the suppliers would help Merrill Lynch.
Bargaining power of customers
Clients want to buy the best services or product at the lowest prices possible. This makes the firm afford them discounts which lower the profit margins. This can be mitigated by acquiring a vast and varied customer base.
Intensity of existing rivalry
Increased rivalry from existing competitors like Stanley Morgan makes Merrill Lynch lower its fees thereby reducing the profit margins. In the past, Merrill Lynch has been able to stay a step ahead of the competition through viable differentiation.
Threat of substitutes
A new product which may meet a client’s needs differently makes Merrill Lynch profit margins dip. However, by offering customized or personalized products to its customers, the firm would be able to handle this threat
Threat of new competitors
The new market entrants provide new innovative technology to customers which put pressure on Merrill Lynch. In a bid to stay ahead, the firm offers new value propositions which sometimes results in lower the profits. To combat this, the firm must come up with cutting-edge technology that adds value to their services or products.
David is a wealth management advisor and the Senior Vice President at Merrill Lynch. David has expertise spanning over 15 years of experience in strategic wealth management focusing on family assets preservation, philanthropy giving, retirement income planning and investment planning. In 2017, he made it Forbes list of “America’s Top Next-Generation Wealth Advisors.” David loves adventure and is always ready to empower and educate through guidance and mentorship.
- Merrill Lynch has maintained its position over the years as the world leader in wealth management; to what would you attribute this success?
- With the rise of internet trading, does Merrill Lynch plan on diversifying their services in online trading?
- With the increased competition in investment banking, what does the future hold for Merrill Lynch?