Industry overview: Institutions and organizations

So now, knowing that there's going to be this increased anomaly at growth and demand for personal financial advisors, let's talk about the institutions and the organizations that are actually demanding them and hiring them. Why are they doing so? So I'm going to use J.P. Morgan as an example because they have an incredibly successful asset and wealth management line of business. And as well, it's a household name that we're likely familiar with. Now the key reason why a large bank like JP Morgan wants to grow this very specific line of business can be summed up in one word and it is scalability. And what do I mean by scalability in this context? I mean that a business or some sort of institution has the capacity to grow to meet increased demand with minimal effort as the business gets larger. larger. So a business that can scale up easily and successfully should be able to benefit from great economies of scale where production costs or labor costs, whatever is being produced, whether it's a service or a hard good, those production costs can be spread across more units and result in higher profit margins over time. So this means that whether it's a hard good like a car or in our context, a service like wealth management, adding that one additional client. It does not have a significant, it actually has a very relatively little additional marginal cost. So it makes it easy to expand the operations and reach new markets, despite maybe having initial startup costs that are high. So let me give you an example of how scalable this business is by focusing on a numerical example. So let's continue to run with J.P. Morgan as our primary example. I'm going to walk you through this table that I've put together through J.P. Morgan's 10 case that have been filed in prior years. So J.P. Morgan's consumer and community banking line of business is its largest by far, and in 2022 it generated net income of just under $14.9 billion on the year. And together with J.P. Morgan's commercial banking line of business, These two units are what J.P. Morgan is kind of known for in the sense that you could think of it as the Main Street Bank. It's focused primarily on making loans, holding deposits, and this is what you're most likely familiar with if you're a consumer. But while consumer banking may be J.P. Morgan's biggest segment when it comes to total net income, it isn't the most profitable. And the same can be said of its commercial banking segment, which provides banking services to large companies and other types of institutions. So this might really surprise you now, but not even J.P. Morgan's famed investment bank is its top segment in terms of profitability. Now, a lot of you watching this course are probably finding this to be very surprising given the dominance of J.P. Morgan's investment bank on Wall Street. But apart from just being so well-known, it's also a bit surprising because this segment produces a similar net income as J.P. Morgan's Community Bank, but with a lot less revenue. Now what you see here in this past 6 years of financial performance is that it's actually J.P. Morgan's smallest line of business that also arguably happens to be its most consistently profitable. So that's its asset and wealth management line of business. In 2022, the asset and wealth management business had a return on equity of 25%, and that's nearly three times the standard threshold in the banking industry, but it's also the most consistent when you look at the past six years above its other lines of business. So in short, if you're wondering how J.P. Morgan has been able to generate consistent and respectable profits through the rocky past decade and a half or so, one line of business that you can't ignore is its Asset and Wealth Management division.