WSJ article about DFA

[ESRBob]

(Back from travels and too much sculpture!)

WSJ has a good article (subscribers only online, unfortunately) about DFA today on the front of the 4th special section. It gives a good explanation of the differences between the DFA approach and Vanguard's, helping explain the "cult status" DFA has managed to cultivate.

It does need an advisor for individuals to get into their funds, unfortunately. Some of the people here and readers of WLLM have had good luck with Evanson Asset Mgmt (www.evansonasset.com) in terms of finding a fairly-priced advisor who can get them access to these funds.

[corrected to take out fee information which is now available on their site]

 

[Red-y]

You can also get access to DFA through Paul Merriman. http://www.merrimancapital.com/.

I used to have an account with them...the way Paul explained it to me, say you want to be in the US small cap asset class. If you go with Vanguard's Small Cap Index fund, you'll be buying stocks in the 6th to 8th decile of the capitalization universe.

But the DFA 9-10 Small Cap fund will put you in the 9th and 10th deciles in terms of market cap, as the name implies.

IIRC when I pulled my portfolio out of MCM, they were charging 0.8% / year as their advisory/management fee.

 

[ESRBob]

Red-Y,
Do you remember how their fees worked? I've been curious about Merriman -- I like his books and philosophy but wondered whether his fees are in the 'put the advisor's early retirement before your early retirement' category.

 

[Red-y]

I got involved with Merriman in the year 2000...I went to a free seminar where Paul spoke and really liked his approach to investing.

At that time they offered Timing and non-Timing accounts. I was in a non-Timing account that got me access to all the DFA funds, via an account set up for me at Schwab.

I paid a quarterly management fee that was based on my account's value at the time X 0.8% / 4. So their fees were directly tied to the value of my portfolio.

The company seemed very well run and totally customer-focused. Paul was a lot less well known then (this was pre- CBS Marketwatch column, etc). He met with me personally to discuss my goals and needs. I suspect he was pretty curious about a 42 year old who wanted to retire in 5 years! My account exec was also top notch.

I thought their fees were reasonable...my understanding is that anything less than 1% of assets under management is a relative bargain. I eventually closed my account because I wanted to cut my expenses to the bone in order to accelerate my retirement, not because of any dissatisfaction with Merriman or their philosophy.

 

[d]

I thought their fees were reasonable...my understanding is that anything less than 1% of assets under management is a relative bargain.

... not to begrudge a well-earned fee (trusting that it is well-earned), but if one has a SWR in the vicinity of 4%, paying 25% of that to an advisor is no cheap date.

 

[ESRBob]

I'm with d-
I think you have to be a lot lower than .8%, since you also have the fund fees themselves to deal with.

Fixed fees of a thousand or two a year aren't bad if you have a million or more under management -- it would work out to 0.1% or 0.2% or even less than .1%. But if you have a smaller portfolio, then even the fixed fees start to be a meaningful bite.

 

[Red-y]

... but if one has a SWR in the vicinity of 4%, paying 25% of that to an advisor is no cheap date.

Interesting point of view...I've never seen anyone compare expense % to SWR, only to expected returns. In my case when I had the account through Merriman the (all stock) 50% US / 50% international mix spread across the value, growth, small- and large-cap DFA funds should have returned 8-12% annually, making the 0.8% management fee less of a bite.

Fixed fees of a thousand or two a year aren't bad if you have a million or more under management -- it would work out to 0.1% or 0.2% or even less than .1%.

I'm not advocating or even defending the idea of forking over management fees to an investment advisor; I myself have reverted to pure DIYism. But I do challenge you to find an advisor who charges 0.1% or 0.2% in fees....I just don't think that happens in the real world.

 

[ESRBob]

But I do challenge you to find an advisor who charges 0.1% or 0.2% in fees....I just don't think that happens in the real world.

It was a long hunt, but Evanson seems to be in that range -- they say there is some wiggle room on it, but their fees are flat-for-service at 2k per year ($500/quarter), so a million under mgmt would be .2% For those with more, the percentage would come down accordingly, but those with under a million either need to cut a deal or face higher percentage.

I do think it is wise and worthwhile looking at fees as a share of your SWR . Total expected return is made up of inflation-adjusting (3% or so), fees (.5% or so ideally) SWR (4%, say) and hopefully a percent or so left over for safety's sake or growth. So all you really have available to spend is SWR and fees, say 4.5% a year on average. Whatever you don't give them you get to spend. Suddenly, every tenth of a percent starts to matter! If the average investor is forking out 1.5% in overall fees as some studies suggest, you can see that is a huge percentage, maybe 1/3 of their retirement spending money going out the door to the financial intermediaries.

 

[saluki9]

I'm not advocating or even defending the idea of forking over management fees to an investment advisor; I myself have reverted to pure DIYism. But I do challenge you to find an advisor who charges 0.1% or 0.2% in fees....I just don't think that happens in the real world.

If it weren't for my partners (and some marketing and liability issues) I would make that offer for members of this forum to give you guys access to DFA for 10 or 15bps

Evanson is your best bet