Companies in the U.S. financial services sector provide products and services to facilitate the flow of money. This includes credit; investment-related services; oversight, meaning accounting, regulatory, and data oversight; stock exchanges; and associated marketing services.
The US accounting and tax preparation industry includes ca. 90,000 firms with combined annual revenue of $65b. Major companies include PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu, Ernst & Young, and H&R Block. Despite concentration at the top, the 50 largest companies hold less than 50 % of the market. Most firms are small, with annual revenue under $1m; larger local firms’ revenue is ca. $5 to $10m.
Demand for services depends on new business formations, the increasing complexity of corporate business, and higher personal income. The profitability of individual firms depends on marketing and mix of services. Large firms can provide a range of services to large corporate customers, with resources at many locations. Although the industry is labor-intensive, the high value of services produces annual revenue per employee of about $175,000 in larger offices.
Banks and Credit Unions
The US banking system includes about 8,000 commercial banks, 1,400 savings banks, and 10,000 credit unions, with combined annual revenue of mare than $600 billion. Major commercial banks include Bank of America, JPMorgan Chase, Citibank, and Wachovia. The industry is concentrated, with the 50 largest banks having more than 60% of the market. The credit union segment remains highly fragmented. Commercial banks account for about 80% of industry revenue, savings banks for 14%, and credit unions for 6%.
Demand is closely tied to economic activity and the level of interest rates. The profitability of individual banks depends on marketing skills, efficient operations, and good risk management. Economy of scale has encouraged industry consolidation. Smaller banks can compete in segments where customer service or knowledge of the local market is more important. The industry is capital-intensive and highly automated; annual revenue per employee is about $300,000.
Just over 100,000 consulting firms in the US generate combined annual revenue of about $125b. Major companies include IBM, Accenture, McKinsey, and Booz Allen, yet the he industry is highly fragmented. About 75% of consulting firms are one-or-two-consultant operations. The average consultancy has fewer than 10 employees and annual revenue less than $1m.
Demand for consulting services is closely tied to the health of the US economy. The profitability of firms depends largely on the special expertise they provide clients. Although labor-intensive, the high value of the work produces annual revenue per employee close to $200,000. Large offices may have annual revenue of $10m. Most consulting firms are privately held.
Financial Planners and Investment Advisors
About 10,000 firms in the US provide financial planning and investment advice, with combined annual revenue of $15b. Major companies include Value Line, Morningstar, and units of financial services companies. The industry is concentrated, with the eight largest firms accounting for a quarter of industry revenue. Otherwise it is highly fragmented.
Demand is driven by consumer income and wealth, and by demographics. The profitability of individual firms depends largely on effective marketing The annual average revenue per employee is about $200,000.
About 130,000 insurance offices in the US generate annual revenues of $85b. Major companies include March & McLennan, Arthur J. Gallagher, and Aon, yet the the industry remains highly fragmented. The largest 50 firms hold 20% of the total market. The average office has five employees and generates less than $1m in annual revenue. An insurance agent works on the insurance company’s behalf; an insurance broker on the customer’s behalf. Many companies on the commercial side function mainly as brokers.
Demand is related to consumer income and the volume of commercial activity. Average annual revenue per employee is close to $200,000.
The investment banking industry in the US is comprised of less than 2,000 companies, with combined annual revenue of about $110b. Major companies include Morgan Stanley, Goldman Sachs, and Lehman Brothers. Investment banking is heavily concentrated, with the largest 50 firms holding 90% of the market.
Demand is driven by economic activity that results in company mergers, acquisitions, or public financing. The profitability of an investment bank depends on its ability to accurately assess both the value of a business transaction and the readiness of the market to buy the attendant debt or equity. Although labor-intensive, the industry produces very high value: average annual revenue per employee at large firms is close to $1m.
Professional services account for a large part of the US economy generating about $600b in annual revenue for 600,000 firms. The largest segments are legal services ($130b), engineering services ($120b), computer-related services ($110b), accounting ($60b), and real estate brokerage ($40b).
Brokerage services, if included in this industry, add another $200b of revenue, including securities brokerage ($80b), insurance brokerage ($60b), and real estate brokerage ($40b).
Demand is driven by the health of the US economy and particularly by corporate profits. While some professional services are necessary, some of the most profitable services are not considered essential and may be postponed when corporate profits drop.
The securities brokerage industry is less than 4,000 companies, with combined annual revenue over $100b. Major companies include Merrill Lynch, Charles Schwab, AG Edwards, and brokerage units of large financial services companies like Citigroup and Fidelity. A typical brokerage office has annual revenue of $5m. The industry is highly concentrated, with the top 50 companies holding more than 80% of the market.
Demand is driven by the returns of securities markets relative to alternative investments. The industry is highly automated: average annual revenue per worker is about $300,000.
The traditional brokerage industry has largely evolved into companies that broker large stock trades for institutional investors or sell a variety of investment products to individuals. Instead of buying individual securities, many individuals now invest in mutual funds.
The venture capital industry includes about 900 companies with combined annual investments of about $26b and more than $250b of investments under management. Major companies include Kleiner Perkins Caufield and Byers, New Enterprise Associates, and Technology Crossover Ventures. The industry is concentrated, as the top 50 companies invest ca. two-thirds of venture capital dollars.
Demand is driven primarily by the pace of technological innovation and the number of companies created to commercialize new technologies. The average venture capital investment is about $8m . Individual investors, known as angels, and large companies with strategic interests in early stage companies are also sources of new venture funding.