What is reasonable fee for DFA funds?

[lifeisgood]

I need to roll my 401k assets over to new home. A guy I do some other business with is an adviser with access to the DFA funds, but his fee is 0.5% per year over what DFA charges. I'd like to get some money into DFA accounts, but I wonder if that fee is reasonable in light of what others charge, and what I could get at Vanguard.

Cheers.

 

[Spanky]

It's worth the fee as long as a DFA portfolio can increase your return by more than 0.5% in comparison to another fund family, i.e., Vanguard.

Cheer.

 

[Nords]

but his fee is 0.5% per year over what DFA charges.

If your DFA fund underperforms or even loses money, will he reimburse the fee?

This board tends to have a bias toward DIY investing and against advisors, especially scum-sucking slimy fee-gouging overpriced pay-through-the-nose fee-based financial advisors. So objective advice may be lacking.

I think DFA funds were the cat's meow in the 1980s and 1990s. I wonder how much their indexing continues to outperform, and whether they still retain a premium return over Vanguard/Fidelity indexes and ETFs. This questions is especially relevant in view of the recent sector funds and microcap ETFs.

There are lots of roads to ER, and I don't think any of them have to be toll roads.

 

[modlair]

My understanding of the DFA formulaic approach is a great deal analagous to the recent discussions of fundamental indexation.

The S&P500 is not the market. Beating it may be done by tailoring some other low cost index, but that doesn't mean the tailored index beat "the market". There will be times when the tailoring fails to beat the S&P500 index. On those occasions there will be other tailored indexes that might have beaten the first.

It is not clear there is any value in paying premium costs to participate in a tailored index whose time window of advantageous performance may or may not be open.

Frankly, the same is true of S&P funds. There is no mathematical reason why they should be the yardstick. Other indices that outperform the S&P500 could just as properly, if costs are equivalent, be the yardstick.

 

[lifeisgood]

Thanks for the advice.

Perhaps I should add that I manage my non-401k assets myself and share the general attitude toward advisers. I can easily manage this money.

So the question isn't whether the adviser is earning his money (not), but whether DFA can make up his 0.5% with the same asset allocation that I would use without DFA.

Or, is there a cheaper route to DFA?

 

[runchman]

You can read a bunch of info about dfa's value/small cap tilt at www.ifa.com.

For me I *am* going with a DFA advisor (Gasps!), in large part to keep me from screwing around with (i.e. messing up) my asset allocation over time, or being tempted to buy 'just a few individual stocks to see how I do'.

Not a popular view on this board, but my 2 cents worth.

- John

 

[FinanceDude]

If your DFA fund underperforms or even loses money, will he reimburse the fee?

No, they get a lower fee.......... :

This board tends to have a bias toward DIY investing and against advisors, especially scum-sucking slimy fee-gouging overpriced pay-through-the-nose fee-based financial advisors. So objective advice may be lacking.

Don't hold back...............

think DFA funds were the cat's meow in the 1980s and 1990s. I wonder how much their indexing continues to outperform, and whether they still retain a premium return over Vanguard/Fidelity indexes and ETFs. This questions is especially relevant in view of the recent sector funds and microcap ETFs.

There are lots of roads to ER, and I don't think any of them have to be toll roads.

And for most people on this board, that IS the truth...........keep in mind the financial services industry has shrunk from its heyday, and if people were less a. lazy, and b. more accountable for their own financial lives, I would do something else. Until that happens, and financial literacy is taught full scale in the schools and/or colleges across the US, there will be a place for us. If I didn't think I could make a difference for my clients, I would go do something else in my field.........

 

[saluki9]

If your DFA fund underperforms or even loses money, will he reimburse the fee?

This board tends to have a bias toward DIY investing and against advisors, especially scum-sucking slimy fee-gouging overpriced pay-through-the-nose fee-based financial advisors. So objective advice may be lacking.

I think DFA funds were the cat's meow in the 1980s and 1990s. I wonder how much their indexing continues to outperform, and whether they still retain a premium return over Vanguard/Fidelity indexes and ETFs. This questions is especially relevant in view of the recent sector funds and microcap ETFs.

There are lots of roads to ER, and I don't think any of them have to be toll roads.

Nords, we the taxpayers paid some pretty hefty taxes to prepare you for a nuclear war. Do we get a refund on your salary and pension now that you retired without fighting one?


I would say this board has an unhealthy bias against advisors. DFA is pretty selective about the advisors it allows to use their funds. I happen to work for one and we do a pretty good job. 50 BPS is a pretty common fee and is similar to what we charge around here. I would hope they would throw is some planning and other services.

Also, to imply that you would have earned the same returns recently with your Vanguard funds means that you have not looked at the numbers. It's as simple as that. On the small cap side DFA is still running at about 200bps above the Russell 2K at 3,5 and 10 years. The large value has a slightly larger advantage on the 3 and 5 year numbers. It narrows slightly for 10 years. I could fill the page with similar numbers.

 

[modhatter]

Saluki9

Don't stop there. We would like to see more numbers. Some of us (me included) have been pondering the same question, as to how the fund in general has done compared to our less expensive cousins.

Naturally, the .50% commission makes sence if the fund has CONSISTANTLY outperformed the other low cost index funds available through Vanguard, etc. So if there is a web site you can point us to that gives us some hard numbers, it would be appreciated.

I would not take offence to the negativity of some of the posters here. You must understand that many published studies out today, suggest portfolio's fare better without the help of paid advisors or large up front load fees. Naturally, nothing is ever 100%, and there are always exceptions to every rule. I think personally, that the DFA funds, providing the management fee does not exceed .5 % may be one of those times.

 

[saluki9]

I don't so much take offense as I do just laugh.

The crowd here is no doubt a unique group. That being said, I just wish that those who criticize every form of financial advice (i.e. Nords) could see what many highly successful people manage to do with their own investments. It's just downright scary. I have the advantage / disadvantage of looking at hundreds of people's financial secrets, from that experience I have learned a lot about how people act when it comes to their investments. Many of those DIY folks do exactly the wrong things. They don't rebalance, they don't set asset allocation targets, they don't do risk profiling, simply they wing it.

modhatter... Let me find a way to post all of those results that doesn't take me hours. I don't think DFA posts performance on the public site, but when you see it, it's sure eye opening.

 

[modlair]

It will be interesting to see the audited DFA results.

 

[youbet]

I don't so much take offense as I do just laugh.

The crowd here is no doubt a unique group. That being said, I just wish that those who criticize every form of financial advice (i.e. Nords) could see what many highly successful people manage to do with their own investments. It's just downright scary. I have the advantage / disadvantage of looking at hundreds of people's financial secrets, from that experience I have learned a lot about how people act when it comes to their investments. Many of those DIY folks do exactly the wrong things. They don't rebalance, they don't set asset allocation targets, they don't do risk profiling, simply they wing it.

Sure, some planners do well for their clients. But what is the industry doing to seek out and terminate those who do poorly for their clients to enhance their own wealth?

My concern is that a person who knows little about investing also knows little about chosing an advisor. They're likely to be the victim of a shark attack.

Folks on this board would like to see a higher percentage of folks educated and knowledgible on investing fundamentals. Once they get to that point, they could likely select a good advisor who charges reasonable fees for doing excellent work. Of course, they could also do more of it themselves at that stage.

 

[youbet]

Sure, some planners do well for their clients. But what is the industry doing to seek out and terminate those who do poorly for their clients to enhance their own wealth?

My concern is that a person who knows little about investing also knows little about chosing an advisor. They're likely to be the victim of a shark attack.

Folks on this board would like to see a higher percentage of folks educated and knowledgible on investing fundamentals. Once they get to that point, they could likely select a good advisor who charges reasonable fees for doing excellent work. Of course, they could also do more of it themselves at that stage.

BTW, are you a fee only advisor or do you work on commissions?

 

[saluki9]

Sure, some planners do well for their clients. But what is the industry doing to seek out and terminate those who do poorly for their clients to enhance their own wealth?

That's part of them problem. There really is no centralized body that can control licensing, education and etc.

That being said, I'm not sure that would be possible. So far the accounting, medical, and legal professions have been unable to cleanse those people from their own ranks.

 

[runchman]

my choice to go to an advisor came after putting 2 years worth of my taxable account cash flows into excel and calculating my rate of return. I'd been buying /selling individual stocks and thought I was doing "ok".

Excel told me otherwise - I had averaged .89 (yes POINT 89) percent for those 2 years.

So I made the decision:

1. No more individual stocks, not even one.
2. Queue up an advisor to keep me out of my own way

Maybe most of you can set up a perfect asset allocation and resist screwing with it and mucking it up; more power to you for going it alone and saving some fees.

For others of us, paying that .5 or .8 or whatever fee is practically guaranteeing we'll do better than we would on our own.

- John

 

[modlair]

my choice to go to an advisor came after putting 2 years worth of my taxable account cash flows into excel and calculating my rate of return. I'd been buying /selling individual stocks and thought I was doing "ok".

Excel told me otherwise - I had averaged .89 (yes POINT 89) percent for those 2 years.

1) If the two years were 2001-2002, you did well.

2) People need to understand that a non correlated sample of a very small number of stocks will approximate the S&P. If you hold enough stocks that are not related to each other, you essentially are assured of approximately market performance. This is well known.

3) This is not rocket science.

 

[youbet]

my choice to go to an advisor came after putting 2 years worth of my taxable account cash flows into excel and calculating my rate of return. I'd been buying /selling individual stocks and thought I was doing "ok".

Excel told me otherwise - I had averaged .89 (yes POINT 89) percent for those 2 years.

So I made the decision:

1. No more individual stocks, not even one.
2. Queue up an advisor to keep me out of my own way

Maybe most of you can set up a perfect asset allocation and resist screwing with it and mucking it up; more power to you for going it alone and saving some fees.

For others of us, paying that .5 or .8 or whatever fee is practically guaranteeing we'll do better than we would on our own.

- John

John,

Think this through. You're talking about going to a commissioned advisor and they're not all working in your best interest. At least be sure you are shopping wisely. Even consider paying a "fee" advisor to help you shop for the "on commission" advisor if necessary or get referrals from people you know and trust.

 

[lifeisgood]

"You can read a bunch of info about dfa's value/small cap tilt at www.ifa.com."

I checked this out - there is a section called DFA vs. Vanguard with a comparison of a set of Vanguard portfolios to a similar set of DFA portfolios. And it shows DFA beating the daylights out of Vanguard; consistently higher returns for less risk. And more than enough to pay for my adviser's 0.5% cut.

It just seems too good to be true. (e.g. "There's no $20 bill lying there; someone would have picked it up by now.") Money should be rolling in the DFA door faster than they can bail it out.

Thanks for all the other interesting thoughts.

IMHO, those centralized licensing boards in professional fields grow out of a long tradition of guilds suppressing competition, and so should be viewed with suspicion.

 

[justin]

From IFA's website:

"Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, IFA’s twenty index portfolios) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time to obtain more favorable performance results."

These guys datamined and optimized their "model portfolios" to give the highest return for the least risk. The "IFA vs Vanguard" comparison on IFA's website is an extension of this backtesting - they are setting up model portfolios after they already know what happened in the market. Not real hard to do in other words. DFA funds slice and dice in many different ways than Vanguard does. IFA's model portfolios have a larger choice of funds from which to optimise their risk/reward than does Vanguard. Vanguard also has a number of actively managed extremely low cost mutual funds that were not considered in the IFA vs. Vanguard comparison. Overall, I take the "IFA vs Vanguard" comparison to be a good piece of flashy advertising to convince you that they can beat the top dog - Vanguard.

If you go with IFA or other DFA advisors, good luck. I wouldn't personally count on a 200-300 basis point advantage, especially after a 75-100 bp fee to your advisor on top of the individual DFA funds expense ratios.

 

[REWahoo]

John, I realize this will come across as the usual party forum line, but…

So I made the decision:

...Queue up an advisor to keep me out of my own way

Are you sure it will? If you can’t prevent yourself from unsuccessful stock investing, can/will an advisor really keep you from making bad investment decisions?

...paying that .5 or .8 or whatever fee is practically guaranteeing we'll do better than we would on our own.

I hope you do well but...

If you have the ability to select a good advisor, follow his advice and “stay out of harm’s way”, then you have the ability to develop your own asset allocation and do your own investing. That will at least guarantee you won’t be reducing your return by the .5 to 1% or more in fees, loads, etc. Heck, there are some excellent “lifecycle” funds out there that do most of the heavy lifting for you.

I have first hand knowledge of the consequences of following the advice of experienced, reputable advisors with good track records. (For the record: I’m not saying all advisors are all bad, only that using an advisor isn’t “practically guaranteeing” anything.)

Example one: A lifelong friend (engineer with an MBA) sacrificed his soul and (sorry Dory) family life to work for a Saudi oil company. He made big bucks, followed his advisor’s guidance and retired in 1999 at age 51 with a nest egg in the 2.5 million range. At our HS reunion in the fall of ‘99 he told me he’d just met with his financial guy (big name company, his personal advisor officed in NYC) who told him, “You're financially set, you will never have to work another day in your life.” Right. A year later his portfolio had lost 60% of it’s value and he was suddenly unretired.

Example two: At the corporate offices of the company where I spent the last 27 years of my working life, many of my contemporaries used the same financial advisor. He was such a frequent visitor to the executive wing that some employees actually thought he worked for the company. For years I heard what a great job this guy was doing, and although I had always been a DIY low-cost mutual fund type investor, I decided I would give the guy a chance to manage my portfolio.

He did the usual evaluation of my financial situation and made recommendations of how I should change my asset allocations and what funds I should use, emphasizing one particular fund which had a long track record of above-market performance. When I checked the fund out, I found not only the big front-end load (which I had expected), but also learned the long-time fund manager had left to go to another fund company three weeks earlier. This was a fund where the manager picked all the holdings, not a committee-run fund. When I asked him about it, he had what I can only describe as a ‘deer-in-the-headlights’ look on his face.

Bottom line, I stayed with the average but low cost investment advisor I saw in the mirror each morning while shaving. That guy retired a few years later…the guys who used the other financial advisor are all still working.

 

[runchman]

Well, to all that are overly concerned for me , I'm not going with a 'traditional' guy that has front-end loads and is trying to sell me universal life policies - I'm simply buying my way into a balanced dfa-based portfolio.

Seems on this board the philosophy is:

1. Don't pay an active advisor because it is a waste of money, and
2. If you are paying a passive advisor, why bother?

I agree it is a perfectly valid argument, and if it works for you, great.

For me, I'm relieved to be spending less time at work tweaking spreadsheets and more time working persuing other interests online.

Will a do-it-yourself portfolio beat mine over time? Maybe so, maybe not, who knows.

The outcome certainly isn't concrete enough to say that paying my advisor is by definition a waste.

Again it's just what works for me !

Damn I wish I'd found indexing and asset allocation about 20 years ago

 

[runchman]

As an aside, it is funny that I am listed as 'dryer sheet aficionado' since I own a laundromat

 

[LOL!]

Quite a while ago www.evansonasset.com was mentioned in these here parts as a DFA-based advisor. So if you are all set on using DFA, why not go with the low-cost DFA provider ... whoever that is?

FD: I have never contacted nor used Evanson et al.

 

[wabmester]

Comparison of DFA and Vanguard

Dimensional Fund Advisors funds have some important advantages over Vanguard, as we shall see. I believe those advantages over time could mean an extra two percentage points of annualized return.

 

[youbet]

Comparison of DFA and Vanguard

Dimensional Fund Advisors funds have some important advantages over Vanguard, as we shall see. I believe those advantages over time could mean an extra two percentage points of annualized return.

wab.....in the chart that compares DFA vs Vgd fund expenses, do the DFA figures include the fee to the advisor?