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Competitive Advantage

By Steven Miyao

Who has a competitive advantage in the asset management industry? What outside of superior product can give an asset manager a competitive advantage?

The August 21 issue of BusinessWeek has a number of interesting articles on "competition." Specifically, the article on competitive advantage talks about five guidelines for creating competitive advantage, three of which are very relevant for our industry:

1. Don't Just Get Bigger, Get Unique
There are so many "me, too" fund families in the industry that most advisors can't tell the difference between them. How are Columbia, J.P. Morgan, Morgan Stanley, OppenheimerFunds, Federated and T. Rowe different from Fidelity? Only very few of the large players have a much differentiated story to tell. Vanguard is a good example for being unique starting from the shareholder owned fund structure to its focus on low cost. After all, who really wants to sell a common, ordinary, everyday, me-too product? More importantly, who wants to buy one?

2. Why Compete? Create New Markets
"Niches are nice, but inventing a new market is whole lot better." The article rightly touches upon Cirque du Soleil as a benchmark business that created a new market with no significant direct competitors. Rydex is an example of this in the asset management space. The firm created inverse and leveraged funds and has been able to launch an entirely fund family with these new products as its core.

3. Obsess about Customers, Not Rivals
There is a lot behind this simple and often overused statement. The by-product of focusing on meeting/exceeding customer needs/wants is the creation of a competitive advantage, while the by-product of mimicking competitors is the creation of a competitive disadvantage. Whole Foods Market and The Container Store all obsess over its customers more than it rivals and success has followed. VK Consulting, Van Kampen's value added services group, serves as a good example for that in our industry. The firm continues to go beyond what its competitors have done in focusing on the business developing needs of its financial advisors.