Edward D. Jones, Sr. founded his company in 1922 and called it Edward Jones. In the year 2006, this company had become the fourth largest broker in the United States. According to my analysis, I discovered that this company faces stiff competition from traditional brokerage firms such as Merrill Lynch, discount brokers such as Charles Schwab and online brokers such as TD Ameritude. This has greatly reduced its profitability and market share, as most consumers prefer online brokers due to the development of information technology. I suggest that this company should adopt the option of introducing online trading, expand its operations to other countries and introduce more products such as offering mortgage merchandise. This would help it increase its profitability and market share. In order to implement this option, it needs to hire more FAs qualified in online trading. Furthermore, it needs to improve its information technology department in order to handle the online transactions. It needs to conduct a feasibility study to determine the most profitable country to expand to.
Edward Jones has been facing stiff competition from online brokers and discount brokers such as Charles Schwab. This has reduced its profits and market share significantly. This memo describes my findings on the company’s external and internal environment. My findings are proved by presenting its financial and economic analysis. It also presents suggestions on the actions that should be conducted by the firm in order to improve its profitability and market share by minimizing competition and expanding its operations to other countries. Furthermore, it gives my recommendations on which option the management of this company should adopt in order to improve its profitability. Finally, it offers my suggestion on how this company could implement my recommendation.
The financial services industry was developed with high-risk and high-return perspectives. The company developed its competitive advantage based on the fact that it could provide its services for the middle class in the society, by offering people financial services that include stocks, savings, planning and bond services. It targeted individual investors and hoped to make money by helping investors make rational financial decisions to promote financial stability (Collis & Smith, 2012).
In June 2005, the total capital owned by Edward Jones comprised 3, 609,654 dollars. Two thirds out of the total assets owned by the company are received from the customers. The estimated value of these funds is 2,481,024 dollars. The total amount of the funds gained from the customers comes from margin balances and money that comes in from transactions done in cash. The money that remains from the total amount is invested in other entities that include state and municipal requirements, corporate bonds and other mutual funds. The money is given to the customers because it is driven by the customers (Collis & Smith, 2012). This means that the assets, present in the company, are accounted for by the funds that are obtained for the services offered by the company to its customers. Liabilities in the company are accounted for by almost 90 percent of the money that is paid to the customers. Additional liabilities include the securities, owned by people in the company, and the money given in terms of bank loans. The collateral was valued at about 1,360,000 dollars that required the company to maintain a minimum capital partnership of about 400,000 dollars, in addition to a net capital of about 181,616 dollars. The partnership in Edward Jones Company owns about 49.5 percent of interest, which comprises about 742,537 dollars (Collis & Smith, 2012).
Porters Five Forces Analysis
Technology has helped Edward Jones company progress. However, it has also presented a threat to the company. This is because the loyalty, which the customers experience for the financial market, is indeterminate. This means that for the company to be competitive it has to ensure that it meets the needs of its customers fully. This means that the possibility of the substitutes’ introduction is inevitable and must be addressed adequately. The increase in the use of the Internet for trading purposes has engulfed a portion of the market share and could continue doing so, if not addressed duly. Therefore, Edward Jones must ensure that its relationship program with its clientele is upheld to differentiate itself from other online trading companies (Collis & Smith, 2012).
Threat of New Entrants
New entrants always get into the market with similar and diverse interests to run business. For Edward Jones to deal with new entrants, the company must ensure that it attracts and maintains its customer base. Over the years, Edward Jones has tried to maintain its customer base by forming a strong relationship with its customers by establishing solid earnings for conservative investors in the company. Training facilities, employing legitimate candidates and establishing a location for training commonly needs the provision of large sums of money from capital investment. The economies of scale work in this scenario. In addition, a recent development of a government policy, that regulates financial abuse, means that a lot of time and cost is required to meet those needs. Therefore, this means that Edward Jones needs professionals who can adequately implement the legislation(Plunkett, 2005).
Edward Jones works in a market that has not yet been developed in terms of the suppliers’ power. This means that the stock trading has many substitutes. The main reason why people hold stock is because they need to make profits from their money. Therefore, Edward Jones deals with trading ground of the New York Stock Exchange and S&P among others. Despite the fact that there are a few organizations in the market, it should not be taken for granted that indexes will dominate in the market. They are established to make sure that there is a legal trading in the market. The main reason why suppliers lack power is because of the substitutes that offer services similar to their ones. Another reason that compounds the problem with supplier power is the low exchange of costs between products. The major cost is set by the brokerage expenses. The laws, formulated to prevent indexes from buying brokerage firms, present a difficulty with respect to an increase of bias in the promotion of specific indexes in the stock market (Plunkett 2005).
The buyers, who are present in the stock market, have certain power over the market. This is explained by the controls that favor buyers, accessibility of information and the power exerted by the buyer in the stock market when purchasing company stocks. When going public, companies must declare the information to the public. If companies hide the information they are bound to face legal actions. It also helps to prevent people from doing insider trading. Shareholders have a chance to vote in the company. This means that when shareholders own large numbers of stocks, they could control the company in terms of its organization. In addition, when company stocks perform poorly, people tend to get out of the company which means that costs switching will remain low in terms of buying and selling. Buyers are self-directed and delegators of the company services. Mass affluent of the buyers is estimated at about 27 percent and validation at about 54 percent.
Edward Jones has three major competitors among the eight competitors in the industry. The three competitors are Linsco/Private Ledger, A.G. Edwards & Sons and Raymond James & Associates. Edward Jones provides a variety of investment services in more than eight thousand offices located in USA, United Kingdom and Canada. These offices function as subsidiaries to the Jones Financial Companies that provide services to individual investors. The strategies used by these offices are to target low-risk investments in their locations. The Edwards & Sons company provides several securities and trading of commodities, financial planning, retirement plans, managerial functions and insurance services. It possesses over seven hundred offices in the USA, Geneva and London. It offers its services mainly to small scale investors. It also offers its services to government bodies. It is a subsidiary to A.G Edwards Inc. Company that provides services, such as asset management, insurance, trust serves and banking investment among other services. Linsco/Private Ledger mainly deals with mutual funds, annuities, insurance, trust, stocks and bonds and real estate among other services (Prosek & Hardy, 2011). It provides these services throughout the USA. Raymond James and Associates Company provide services, such as stock and bond services, insurance, investment services and brokerage services. They have almost seventy offices in the United States of America. They work as a subsidiary of Raymond James Financial Company that provides brokerage and planning to individual clients and institutional clients. Other competitors include Merrill Lynch, Charles Schwab, TD Ameritrade, Wells Fargo and LPL. They offer low price costs by targeting all levels of customers. They also offer online trading, mortgages and private equities among others (Prosek & Hardy, 2011).
Edward Jones has a strong customer relationship which it has developed since its inception. It also has a holding period for mutual funds that are invested in the company. It has more than 9000 officers in different countries which allows for quick accessibility. It also runs a rewarding program for best performing investors and customers. It also offers financial advisor training that edges it on top of other companies.
The company scores low profit margins, has poor turnover rates and has no customization. The company also has no minimum account size that makes it possible for anyone to enter the company. The international operations in the company complicate issues because different countries have different modes of financial handling techniques that are sometimes problematic for the company.
The company has used technological advances, for instance, online trading, to offer services to its diverse clientele. This also includes Internet trading that helps the company do real time trading. The company has also targeted institutional businesses, which possess considerable funds. It has also expanded its demographics worldwide that offers it an advantage of dealing with a larger clientele (Prosek & Hardy, 2011).
The numbers of its competitors have been rising steadily. Currently there are eight competitors that offer similar services in the market. The economic downturns have also been a threat because the company gains low profit margins. The substitutes, present in the market, also pose a certain threat to the company. The company also recorded poor performance out of the market(Prosek & Hardy, 2011).
I would recommend the management of Edward Jones to change their strategy, introduce online trading, offer new products, and expand their operations into new countries. If they engage in online trading, they would reduce the stiff competition they face from online traders (Prosek & Hardy, 2011). This company has taken advantage of the low operating costs of online trading and they have increased their profit margins. It should also consider improving its products and concentrate on investment banking and asset management. It would reap huge profits from these products since they would be selling the proprietary funds and stocks underwritten by the investment banks. This would significantly improve its client base, thus increasing its market share (Collins & Smith, 2012). It should also consider expanding its operations into other countries such as the United Arab Emirates. Investors in this country have a high interest in brokerage products and if they extend their operations in this country, they will have taken a good option in investing in this profitable venture.
This strategy is the best option since the company would improve its profitability and market share in the long run. At the same time, it would be able to reduce the stiff competition, which it currently faces, from insurance companies, such as State Farm, and banks, such as Wells Fargo, since it would be offering more investment products to consumers. By adopting this option, its revenues would increase and its financial risks would be significantly reduced since it would have diversified in different markets by expanding to various countries. Even if this company would have changed its traditional strategy, it would still be focusing on offering mutual funds that have contributed significantly to its success. It would also be concentrating on its strategy that states that the end user is the most important client of the firm since it would be concentrating on improving customers’ service level of satisfaction through the introduction of online trading.
Suggestions for Implementing the Recommendation
The managers could implement the above recommendations by improving their online services in order to implement online trading. In order to improve their online services, they need to employ more FAs who are qualified in market speculation using computer software. This would enable them to invest in profitable online securities (Prosek & Hardy, 2011). It also needs to expand its information technology department by purchasing the latest computer equipment and servers to handle the online transactions. Alternatively, it could consider outsourcing its Information Technology Department to firms that specialize in online investments. This would enable it to save the costs that it would have incurred if it hired more staff skilled in online trading. It should also train its current FAs so that they become averse in handling the new products that this company proposes to introduce. This would improve the skills of the FAs and, thus, they would easily convince clients to invest in these products. It should consider adopting in-house training since this would help it save on training costs. Moreover, it should consider increasing customer and work place diversity. This would ensure that all the employees know how to deal with different customers and this would help reduce the time that a single FA spends on serving a customer. Therefore, this would improve its customer service level.
Before establishing new offices in other countries, Edward Jones must first look at the operations of those countries’ financial markets. Specifically, it should look at the behavior and operations of the competitors in those countries in order to know how they undertake their businesses. Edward Jones must also observe the behavior of the customers and investors in those countries. This is because different customers and investors behave differently because of the set up of their financial industry. This will enable Edward Jones to establish its offices and compete with other firms having enough information about the business environments that it enters. This would help it increase its market share since its brand will improve because of the information gained by the company. By entering into new markets, consumer loyalty will also improve (Prosek & Hardy, 2011). In order to open new offices in its new target markets, it needs to sign new lease contracts with the building owners where its offices will be located.PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT!
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