There has been much buzz recently around the advent of the 3D printer. It is easy to see why. By creating the ability to deliver customised, bespoke, manufactured solutions at lower cost, it can revolutionise the world of manufacturing
The 3D printing revolution has all the potential to achieve these aims because it creates an ability to move away from two traditional forms of manufacturing. Firstly, the large scale, low cost, volume driven manufacturing of standard products that many of today’s plants are set up to produce. And secondly, it is a move away from the high cost manufacturing of bespoke solutions. 3D printing creates a business model in between the two where tailored, bespoke designs can be manufactured at a much lower cost because of the ability simply to print the unique product. This is all without having to specifically reconfigure a machine or production line to deliver it. The value derived comes almost exclusively from the design and not the manufacture.
Why is 3D printing of relevance to the funds industry? There are parallels between the changes 3D printing is bringing about to the manufacturing sector and the changes being undertaken across the funds industry. In the 3D printing world, there is potential to create bespoke product designs which are better suited to a client’s individual requirements at a much lower cost. This compares neatly with the fund industry, which is now talking about solutions rather than products recognising that the era of high volume, low cost manufactured fund product needs to be enhanced with more targeted fund solutions for specific groups of investors. This is especially true as more individuals across Europe are being encouraged, and sometimes mandated, to save for their retirement through DC pension schemes where outcomes and solutions are key over the long term.
Creating Bespoke Fund Solutions
Every financial advisor or wealth manager would like to achieve the creation of bespoke designs to match a client’s specific requirements. . They would typically do this via the development of a unique model portfolio which they design and maintain to match a client’s current investment capacity, lifestyle plan and risk profile. This is especially true in the current environment where commissions are rapidly being replaced by fees for financial advice in many markets. This has already happened in the Australia, UK and Netherlands. And with the introduction of MiFID II, it will soon take place more widely across Europe. In this environment, financial advisors and wealth managers need to justify any costs over and above the management fees within a ‘product’ by showing the value that they add in the creation of solutions for clients. This cost means that the service is typically only available to those with large investment pools to manage.
In the UK, as we enter a post-Retail Distribution Review era, there is currently a greater focus on ‘fund solutions’. This is in part, due to the current phasing of auto-enrolment into DC pension schemes. The increased attention on ‘fund solutions’ can be seen in the following trends across the market:
- Asset managers are creating multi-asset and diversified growth funds to try and create pseudo risk/return profile solutions to support desired investor outcomes
- Increased inflows into multi-manager products which are effectively playing in the space of model portfolios with defined risk/return outcomes
- Platforms offering more model portfolios or model portfolio capabilities to their advice community so they can offer more tailored investment strategies to their clients and also the rise of direct to customer (D2C) solutions
- Life companies increasingly entering the wealth management space, using their ability to create blended funds to offer model portfolio like investment solutions
All of these trends are ultimately leading to the phrase ‘fund solution’ being used increasingly across the asset management industry. More and more fund solutions are being ‘manufactured’ to create model portfolios with risk/return profiles. These portfolios are looking to address the needs of different segments of clients who want different outcomes from their investments, but will not necessarily pay for completely discretionary advice services or do not have the assets to justify this expense.