DFA recommendation

[ferco]

A financial planner recently recommended going with his firm by transferring my IRA funds to a DFA account that he would handle (advise) @ 1% of assets.He touted Emerging Market returns of 20-25% return, but so did Vanguard and others.I reading a recent post on DFA's I would imagine one could and should just mirror the same DFA allocation by using Vanguard. For a 1m account why give away 10k per year ?

 

[LOL!]

Can you reverse engineer a DFA portfolio? I think you can except for the emerging market small cap and emerging market value classes.

Have you seen the diehards thread on the subject? There are several DFA-sanctioned advisors on that forum and they chime in from time to time.
See Bogleheads :: View topic - Has Your Portfolio Beat DFA? and other threads there.

Another thing emphasized by the advisors there is that there are many DFA advisors ... so you should interview several and pick the one you feel comfortable with and one you can work with who you respect. Also your 1% quoted fee seems a bit high given the numerous DFA choices out there.

 

[ats5g]

Ferco,

Here's what Rick Ferri, and Investment Manager/Advisor at Portfolio Solutions recently said about your dilemna:

As you know, DFA funds are only available to most people through a paid investment advisor. That leads to a couple of points I want to reinforce again.

1) Never hire an advisor just to gain access to an investment products including DFA funds. It is not worth the extra cost. If you want an advisor or need an advisor, and that advisor has access to DFA funds, that is a plus.

2) Don't rule out an advisors just because they do not have access to DFA funds. It is not that important.

My firm has access and we use a few DFA funds in the asset classes they are good at. We do not do 'total DFA portfolios' because no mutual fund company is all things to all people all of the time. That includes Vanguard.

You can achieve the same value and size tilts in a portfolio without DFA funds by using a little creativity. Simple allocate slightly more of almost any small value index fund to a total market fund and you will achieve the same size and value loads in the portfolio.

Rick Ferri

A couple of other Investment Advisors that use DFA are Eric Haas and Scott Burn's Asset Builder. I'm sure there are others.

Simply investing the money for you should not be worth 1% of your assets per year. You should be getting all kinds of other services as well - for example, financial planning in other areas [estate, etc].

- Alec

 

[boutros]

My company manages assets using some DFA funds. I would agree with Rick Ferri's statements that you can replicate a DFA portfolio using non DFA products and we do not use purely DFA funds in our portfolios, probably ~30%. 1% is too high for managing a 1mm mutual fund portfolio in my opinion.

If you have your heart set on DFA funds you may want to look for a fee only planner that allows for plannning services billed hourly and has access to DFA funds through their managed services. We let non managed clients use DFA funds too. 5 hours billed annually might be a $1500 vs $10000 for a 1mm managed account.

 

[FinanceDude]

A couple of other Investment Advisors that use DFA are Eric Haas and Scott Burn's Asset Builder. I'm sure there are others.

I think Haas's "comprehensive financial plans" are pretty steep.............

 

[ESRBob]

My company manages assets using some DFA funds. I would agree with Rick Ferri's statements that you can replicate a DFA portfolio using non DFA products and we do not use purely DFA funds in our portfolios, probably ~30%. 1% is too high for managing a 1mm mutual fund portfolio in my opinion.

If you have your heart set on DFA funds you may want to look for a fee only planner that allows for plannning services billed hourly and has access to DFA funds through their managed services. We let non managed clients use DFA funds too. 5 hours billed annually might be a $1500 vs $10000 for a 1mm managed account.

Boutros,
I had this kind of arrangement with my Financial Planner, until their SEC Compliance department got a good look at this area and decided it was a huge liability because in the Schwab Master Account they quack like 'Advisors' and can thus be sued by money-losing clients for not having advised against bad investments. May be different for you and your firm, and perhaps the 5 hours a year is enough to highlight this sort of thing sufficiently to ward off liability, but just wanted to give you a headsup.

Now I have had to switch to the least expensive (2k a year) advisor I could find to keep access to the handful of funds I crave (DFAs international value, international small (since Vinex is closed), international small value, emerging markets value, and emerging markets small and US Microcap -- none of which I believe are as well covered or covered at all by other funds/ETFs or securities.)

Also, I think the Altruistfa.com site has really useful comparisons between fund choices, but looking at their fees they are hardly altruists, despite the name

 

[FinanceDude]

Boutros,
Also, I think the Altruistfa.com site has really useful comparisons between fund choices, but looking at their fees they are hardly altruists, despite the name

They say they recommend Vanguard to those who need it. Hmmmmm........I hope there's no "wrap fee" on those Vanguard funds..........but of course there would be.........

 

[Nords]

Also, I think the Altruistfa.com site has really useful comparisons between fund choices, but looking at their fees they are hardly altruists, despite the name

Did I happen to mention that Eric Haas is a fellow submariner?

 

[Alex]

Welcome to Cardiff Park Advisors is a low cost adviser that has access to DFA funds. Personally, I'd stick with Vanguard's index lineup and buy a few ETF's as needed to fill in the blank spots. Good luck!

 

[FinanceDude]

Did I happen to mention that Eric Haas is a fellow submariner?

That's pretty cool........did/do you know him?

The Navy was recruiting at career day my senior year. I stopped by and talked to them for awhile. They were looking for a few people to go to OCS and be assigned to a sub as a Propulsion Officer or something like that?? Anyway, it was intriguing to me. They liked my math minor more than the finance degree.

I talked to my dad about it, and he pretty much talked me out of it.........wonder what would have happened had I went that route??

 

[Nords]

That's pretty cool........did/do you know him?

We've run across each other's names & duty stations although we've never served together. But I enjoy watching nukes weasel their way into respectable positions in civilian society.

The Navy was recruiting at career day my senior year. I stopped by and talked to them for awhile. They were looking for a few people to go to OCS and be assigned to a sub as a Propulsion Officer or something like that?? Anyway, it was intriguing to me. They liked my math minor more than the finance degree.

Yep, assistant engineering officers standing duty as Engineering Officer of the Watch.

I've always wondered if I hadn't discovered nuclear engineering whether I'd have ended up in financial management...

One of my COs was an engineer on a submarine with embarked midshipmen. They had a great cruise and one of the mids told my CO that his leadership example had inspired him to pursue a submarine career.

A few years later my CO was walking down the pier on the way to his command when he saw a guy in khakis sitting on the edge of the pier with his head in his hands. He asked the guy if he was OK and recognized the mid, now a LTJG. After describing your basic bad Navy day, the young man said "Boy, sir, I'm sorry I ever followed your example. It's been the worst experience of my whole life!" Win some, lose some.

...wonder what would have happened had I went that route??

Well, you've seen my pictures-- but there's no telling which way your experiences would have gone!

 

[cute fuzzy bunny]

Regarding the fine slice and dice methodology...it may be worthwhile to note that most of the fabulous historical data is derived from decades during which not a whole lot of people had very much money invested in some of these thinner slices.

In short: obscurity might equal some of that long term performance. And a flood people becoming enlightened to slice and dice asset allocation may be the explanation for more recent high performance.

If the music happens to stop, make sure you have a chair picked out...

 

[megacorp-firee]

Sorry, can someone please give me the readers digest version of why everyone seems to be so enamored with DFA funds? I noticed it on the diehard board too. What am I missing? Thank you

 

[LOL!]

Sorry, can someone please give me the readers digest version of why everyone seems to be so enamored with DFA funds? I noticed it on the diehard board too. What am I missing? Thank you

RD version: An asset allocation composed of DFA funds appears to outperform a Vanguard portfolio by 1 to 2% per year after fees.

 

[megacorp-firee]

RD version: An asset allocation composed of DFA funds appears to outperform a Vanguard portfolio by 1 to 2% per year after fees.

Sounds good... what is the track record on this? How many years has it consistently beat VG... also what is the risk difference? I did not think anyone was consistently beating the indexes.
Thanks.

 

[LOL!]

Sounds good... what is the track record on this? How many years has it consistently beat VG... also what is the risk difference? I did not think anyone was consistently beating the indexes.
Thanks.

They don't beat the indexes, since they create and use their own index funds. It's all in the asset allocation.

And your questions go beyond the Reader's Digest version. I suggest you research them carefully. They have a web site where you can start.

 

[megacorp-firee]

They don't beat the indexes, since they create and use their own index funds. It's all in the asset allocation.

And your questions go beyond the Reader's Digest version. I suggest you research them carefully. They have a web site where you can start.

lol LOL ok I got it ... thanks I will go take a look.

 

[Lsbcal]

I'm coming late to this thread. The only reason I would have for accessing DFA would be to get into their small value offering which is difficult to duplicate at Vanguard. But I noticed that recently Bill Bernstein has been quoted as saying that the small value premium may be negative now after 7 years of great performance. So I'll probably just pass on DFA access plus don't want to pay 1% of assets per year for the access though a DFA approved advisor.

Les

 

[ats5g]

I knew I saved this for a reason:

A few years ago, Jonathan Kandell wrote an article at indexfunds.com, before IFA took it over:

Diversifying Fama-French style with Vanguard Funds

It's basically using a combo of Vanguard's LV Index, Extended Market index, and SV index.

- Alec

 

[Lsbcal]

Alec, thanks for the reference.

Regarding overweighting small and large value stocks, awhile back I took the French-Fama data and plotted the previous 5 year returns versus the next 3 year returns. The graph just seemed to show (eyeballing it) that there was little predictive value in the previous 5 year return except when returns were very negative in which case the next 3 years were quite good.

That said, I really respect people like Bill Berstein. Also there is this nasty habit of reversion to the mean. Overweighting small and large value has been public for quite awhile now and it looked like a savior in the 2002 period when growth got creamed. Now we see some smart investors pointing to GARP type stocks as a somewhat undervalued part of the market. So my money remains on that sector and midcaps.

Anyway enough of my observations -- not sure anyone is tuning in or cares anyway .

Les

 

[ESRBob]

Les,
We care, but the business of timing sector ups and downs is one for smarter people than I. Or luckier people. My own experience is that you can be right for awhile, but being right year in and year out, trade after trade, -- when I add up the wrong moves that will also fall in there, I just concluded it was better to just go with a regular rebalancing and asset allocation method -- the future is really long and there's room for a lot of mistakes in the years ahead.

Then again, a friend showed me Bank Rate Monitor recently -- for 2k a year he swears by the sector allocation predictions.

 

[cute fuzzy bunny]

Alec - fascinating...I had never considered a portfolio starting with a core holding in the extended market index and building from there...just adding exmx to increase mid and small cap.

How old is this article...a couple of years or more than that? Curious as to how the numbers settle today vs when the article was written.

 

[Lsbcal]

ESRBob, I'm not really advocating timing and agree that the fewer portfolio moves (other then rebalancing) the better. Currently my portfolio is balanced between growth and value, has a healthy dose of international, and is close to being weighted like the Total Stock Market but somewhat underweight in small cap. Regarding TIPS I'm using a method similiar to that discussed in Swedroe's bond book (Appendix B).

Les

 

[lswswein]

How old is this article...a couple of years or more than that? Curious as to how the numbers settle today vs when the article was written.

If I remember correctly that article was around 2000-2001. If want to do something similar, there is a lot of data out there to figure it out.

The real interesting thing to do would be to calculate your portfolio, small and value ratings. to do this it helps if you have access to the morningstar monthly returns data, but you could also use the yahoo data after scrubbing it a bit.

Bill Bernstien has details on how to do your own 3FF nalysis.
Rolling Your Own: Three-Factor Analysis

-h

 

[saluki9]

Alec - fascinating...I had never considered a portfolio starting with a core holding in the extended market index and building from there...just adding exmx to increase mid and small cap.

That isn't that unusual as it sounds. It's done fairly frequently in taxable accounts to minimize taxable distributions. Because the small and mid cap stocks are a lot more likely to move between deciles it makes sense to hold them in one fund.