Advisors ignore road to success

Advisors ignore road to success

Advisors ignore road to success Why aren’t more advisors doing it the DFA way? considering only Vanguard Group and JPMorgan Chase bettered its startling 2014 performance.

According to Investment News Dimensional Fund Advisors brought in $28 billion last year bettering all but two of the industry’s largest players. Selling to a select group of advisors and never direct to consumers, DFA has a loyal following that rarely stop recommending its funds.

While in business for more than 30 years in the U.S. it’s a relative newcomer to Canada. That being said I’m sure most financial advisors have heard of the Austin-based investment firm.

What makes it different?

Well, much like Vanguard Group, it sees active investing as a mug’s game that can’t be won. Utilizing research by Eugene Fama and Kenneth French, DFA’s built a system of investing that focuses on small-cap stocks, value shares and those companies generating significant profits.

Lipper data suggests that it’s outperformed about 90% of its stock and bond peers over the last 15 years. Interestingly, DFA puts an emphasis on its advisors managing expectations when it comes to client returns, despite the fact it beats most of its investment management competition.

Advisors who want to invest in DFA funds for their clients are put through a vetting process that tests their commitment to the DFA way. Over a number of months advisors are interviewed, surveyed and required to spend two days at its head office understanding how DFA does business.

It wants to know how you operate, your philosophy of investing and anything else that impacts a financial advisor’s success. It’s not necessarily looking for advisors that have the biggest books but rather those that care about the entire investment management process from beginning to end.

Justin Bender, an advisor at PWL Capital in Toronto, uses DFA funds for most of his client portfolios in combination with low-cost Vanguard funds. PWL’s sensible approach to investing is something more advisors would be wise to follow. Here are five model portfolios that illustrate Bender’s philosophy.

WP reached out to Brad Steiman for information about its Canadian asset gathering success in 2014. According to Steiman the 150 financial advisors who DFA authorizes to sell its funds gathered $700 million in new inflows this past year.

That’s good news for mutual funds which haven’t had much to boast about in recent years. You can expect to hear more from us about DFA in the weeks and months ahead including conversations we hope to have with some of their Canadian advisors. 
  • Comments 2015-01-20 10:47:23 AM
    DFA has been very profitable for DFA corporate and its advisor network. Not so much for customers though:

    More risk, less return. And that's before advisor fees!
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  • Mike 2015-01-30 3:07:30 PM
    I use Vanguard, iShares and DFA. The blog contains a number of errors and is clearly biased in my opinion. Since small cap and value premiums can take a long time to show up, comparing funds with less than 15 years of performance data is not very useful. Along with the greater focus of the DFA funds on the factors of returns, the better trade execution, securities lending and freedom from having to track a third party index gives DFA a competitive edge. Due the the greater tilt towards small cap and value, I believe expected returns to be somewhere between 0.5% - 1.5% higher than the similar Vanguard of iShares solution. I don't think Vanguard or iShares even offers a variable credit strategy on the fixed income side. No matter how good the solution it always seems that you will have some detractors. Perhaps an advisor that got turned down?
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  • Will Ashworth 2015-02-03 3:56:58 PM

    Thanks for commenting.

    DFA is definitely doing a lot of things right.

    One thing to keep in mind - small caps have had a good run in recent years and reversion to the mean could seriously affect DFA performance in the future.
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