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An Analysis of the General Demand Function Applied to the Changes in the Financial Services Industry
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Discusses the theory of the General Demand Function as it applies to the financial services industry. Clarifies definitions, presents data on the size of the industry & how it generates profits, & summarizes means of measuring or determining production.... More...
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Paper Abstract:
Discusses the theory of the General Demand Function as it applies to the financial services industry. Clarifies definitions, presents data on the size of the industry & how it generates profits, & summarizes means of measuring or determining production.

Paper Introduction:
An Analysis of the General Demand Function Applied to the Changes in the Financial Services Industry Introduction This paper will discuss the theory of the General Demand Function as it applies to the financial services industry (Maurice & Thomas, 1995, 15) . Part I, Definitions, will clarify the focus of the discussion. Part II, Data, will present the data accumulations connected with the industry, particularly the number of producers and the way the industry generates its profits. Part III, Production Volume of Major Producers, will summarize both the way production is measured and how it is determined. Part IV, Market Share of Major Producers, and Part V, Conclusions, will feature the conclusions based on this study.

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If thesecompanies are reluctant to discuss terms like market share even in theirannual reports, then it becomes apparent that market share is not acritical evaluation element when choosing a producer for a financialservices purchase. These three factors will have apressured increase on the concept that Maurice & Thomas' discussion inChapter 2 expresses. It is here that an assumption is necessary. Using the quantity demandedframework, it is apparent that the financial service industry operateswithin the sub-definition of "ordinary demand functions," which impliesthat there is a "relation between the quantity demanded and the price ofthe product when all variables affecting demand are held constant atspecific values." The six principal variables that influence the quantitydemanded are: price, consumer income, price of related goods or services,tastes and preference patterns, expected price of the product in futureperiods and the number of consumers in the market.Part II. Part III, Production Volume of Major Producers, will summarizeboth the way production is measured and how it is determined. An Analysis of the General Demand Function Applied to the Changes in the Financial Services IndustryIntroduction This paper will discuss the theory of the General Demand Function asit applies to the financial services industry (Maurice & Thomas, 1995, 15). This attitude has special bearing on all of the key variables of aquantity demanded formula. Perhaps inthe financial services industry, "quantity demanded" is not as important as"quality demanded," and if so, then all of the elements of the formulastill hold up. Relevant Data Concerning the Number of Producers in the Industry Relying on definitions provided by the International Association ofFinancial Planners (IAFP) which has 5 , individual members around theworld and some 23, corporate members, including banks, brokerages,venture capital firms, insurance companies, pension plans, and othersimilar organizations, a financial adviser is "a financial servicesprofessional who helps people achieve their financial goals based on theirindividual condition, resources and capabilities." IAFP encouragesadvisers to use the financial planning process. For instance,about half of the 8 , members of the Association of IndividualInvestors, in Chicago, are now using personal computers for investmentanalysis, portfolio management, and on-line stock trading. Managerial economics. References Maurice, S.C., & Thomas, C.R. A financial adviser isalways expected to put the client's interest first. A few hours spent going through the some6 financial service providers on the Internet provides valid evidence forthis conclusion. At a minimum to call themselves a financialplanner, individuals must hold a financial services license in areas suchas insurance or securities or who is registered as an investment adviserwith the Securities and Exchange Commission (SEC). So most producers talk about elements like serviceprovided and security suggested. Part III , Production Volume of Major Producers Even though the financial services industry has been called abehemoth based on the $16 trillion in assets, it is erroneous to assumethat that figure is the size of the annual production of the industry.That figure includes a lot of M-1 money as well as money that is listed ascapitalization of banks, lending companies, mortgage companies and so on.The profit margins of the major producers in the industry are derived fromextremely complex formulas based on a number of factors, including real andprojected interest rates tied to the type of instrument. Some members sell financial products aspart of the services they provide (IAFP, 1997). Nation's Business, 22-29 International Association of Financial Planners (1997, November 1 ).[On-line]. A strong subset of the"quality demanded" concept is that more and more individuals are becomingcomputer literate and doing many of their own trades on line, keeping amore personal involvement with their future financial planning while at thesame time cutting down commission costs for transactions. Therefore, it is relevant to define the financialservices industry at this moment in time. Regarding "quality demanded," The IAFP lists severalcategories of membership and it suggests that anyone interested ininvestigating which financial instrument to purchase ask the potentialfinancial planner if he or she is a member, and if so, what kind. Part IV. Instead, the researchsuggested that in the financial services industry, that companies tend toincrease their profits, not by charging higher prices in markets withhigher price elasticity of demand (absolute values), but by charging lowerprices in markets with lower price elasticity of demand. (FifthEdition) Chicago, IL: Irwin Publishers Division of McGraw Hill. (1995). First, that thefinancial services industry could be analyzed like any other industry.Second, if it could be analyzed like any other industry, then the classicGeneral Demand Function of pricing would hold true. It is often truethat price elasticity of demand of financial services products are higherupon introduction of a product into a new market than it is in markets forwhich the product has been sold for some time. These changesdirectly affect the way that these producers run their enterprises andmanage their business finances and accounting largely in response to thenew flexibility in financial services as the industry moves forward. For instance, consumers will choose betweenPlan A or Plan B based on the " price of related goods or services." Theywill avoid a mutual fund if their tastes and preference patterns havecreated in them the idea that such funds are risky and thereforedangerous. Part II,Data, will present the data accumulations connected with the industry,particularly the number of producers and the way the industry generates itsprofits. However, there are certain giants in the industry,American Express, Schwab, Prudential, and State Farm among them. Szabo, J.C. Inspite of these variables, the producers of the financial services industryare for the most part quite profitable, thanks in no small part to theimpact of technology on the function of quantity demanded. " That last statementneeds explaining. The goods and products that these companies andindividuals are offering for sale are all financial instruments and assuch, exist in that rarefied area of "potential profits." Since each ofthese investment plans hopes to make a profit on the projected growth ininterest income generated by their use of the customer's money, they tendto utilize aggressive marketing strategies, including paying handsomecommissions to financial planners who get their clients into one or more ofthe programs being offered. It has been called a behemothwith five million employees and $16 trillion in assets by Szabo (1994), andthe current thinking regarding the industry is that it will be influencedby three critical factors over the next twenty years -- demographics,technology, and consumer expectations. Part IV,Market Share of Major Producers, and Part V, Conclusions, will feature theconclusions based on this study.Part I: Definitions Before any meaningful discussion of the General Demand Function, canbegin, it is necessary to define the terms of the two major variables: thenature of the financial services industry and the meaning of the GeneralDemand Function. The "expected price of the product in future periods" isrelevant only to the potential returns on investment in terms of returns oninvestment or and the number of consumers in the market. (1994, October 1). Each member dealsdirectly with clients and maintains continuing education requirements forlicenses or registrations held. Membership in the IAFP implies an agreementthat the financial services professional will not operate solely on acommission basis, but will help the client choose the best program for thebest results. They state that "the amount of a good or services thatconsumers in a market are willing to purchase during a given period of time is called quantity demanded" (15). Market Share of Major Producers The concept of market share is not easily defined in this particularindustry for several reasons, the most important is the concept of size.Marketers have learned that investors trying to decide on a financial planare definitely less swayed by concepts of size and market share, than theyare by such concepts as reliability of the producer and the faith theyplace in the producer. The changing world of financialservices. is forthe individual practitioner. Available: http://www.iafp.org. (Szabo, 1995).These technological advances, Szabo suggests are a reflection of thehistoric trend that shows the movement away from strong governmentalcontrols Part V, Conclusions This analysis began with two major assumptions. Part I, Definitions, will clarify the focus of the discussion.

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