what is the added value of a DFA adviser?

[johnk]

In contemplating whether to be a do-it-yourself investor, say in a simple
Vanguard index portfolio, or a more rigorously devised DFA / ETF / index fund portfolio set up and managed by an investment manager, what is the added value that one gets for say 0.75% annually, or even 1.0% annually? Does a simple Vanguard buy and hold portolio of a few core asset classes come out ahead or behind in your opinion?

Merriman's service costs 1.0%. Others vary. Had I assets enough to meet Rick Ferri's minimum I'd go that route. AssetBuilder is cheaper but I hear very cookie cutter. Talis Advisors of the Dallas area charges 0.85% and has rave reviews in some quarters. Some seem to emphasize more of a set plan with some rebalancing, others a more rigorous rebalancing and tax loss harvesting approach using strictly DFA core funds. I'd be interested to hear comments.

 

[crazy connie]

I used an advisor for 2 years (1% at Principal Advisors) and then compared my results vs straight market index. The index funds won by about 2.5%. Then I thought long and hard and realized that once my account hit the 1M mark, I would be paying 10k a year to my advisor. The best job in my life never paid me $1000+ an hour.

I now manage my portfolio and appear to be doing better than the market. If I live for another 30 years I would prefer the 400K in advisor fees in my account for me and the kids.

In the future if I get tired of working it, I will go straight to a set of Index Funds aka Coffee House Investor type of allocation.

 

[johnk]

advisor vs. do it yourself

Connie,

Thanks for replying.

Let me ask you, by saying "if I get tired of working it, I will go straight to a set of Index Funds aka Coffee House" do you mean that you are a relatively savvy do-it-yourself investor? I mean, setting up and managing my own Coffeehouse type portfolio seems, to me, somewhat daunting in that I have several different types of accounts and based on advice I believe I'm supposed to aim for a unified portfolio. So, my question is, can you give me some input on what type of mix of funds, allocation, got you the 2.5% better return?

And that means essentially that even if they had worked for you for no fee, you'd have beaten them by 1.5%. John.

 

[LOL!]

DFA vs Vanguard. The oft-asked question here and at www.bogleheads.org.

See also Analyzing the 'high-fee' DFA-approved advisor's sales pitch. and Low-cost, fixed-fee DFA investment advisors

I've run mock portfolios of Vanguard vs DFA for about 18 months now. The idea is to have portfolios with the same asset allocation, same M* 9-box style grid and same average market cap. The Vanguard portfolio is ahead before including the DFA advisor fee. So it is even more ahead with the fee. But this is during a time when small and value has not been doing as well as it has in the past.

IMHO, the DFA route is good for your spouse when you die. If you like to do tax-loss-harvesting and rebalancing on your own, then DIY with Vanguard. If you don't like to do that, then DFA. But choose a DFA advisor that charges only a few thousand bucks a year and not one that costs more than 0.25% of your portfolio.

 

[FinanceDude]

DFA vs Vanguard. The oft-asked question here and at www.bogleheads.org.

Thos you have to grant that those two sources are biased towards index funds............

See also Analyzing the 'high-fee' DFA-approved advisor's sales pitch. and Low-cost, fixed-fee DFA investment advisors

DFA is selling a "system", not much different that a newsletter "guru" or a proprietary Russell "Fund of funds" wrap or anything else. They are making it somewhat "exclusive " by limiting whom can use them. You have to pay $3500 as an advisor to "train" with them, plus promise a certain amount of business going to them each year.

IMHO, the DFA route is good for your spouse when you die. If you like to do tax-loss-harvesting and rebalancing on your own, then DIY with Vanguard. If you don't like to do that, then DFA. But choose a DFA advisor that charges only a few thousand bucks a year and not one that costs more than 0.25% of your portfolio.

I think Scott Burns charges MORE than .25% a year, but most on here think of him as a guru............

 

[TN_INVEST]

You never pay for performance.

It's all about the service. Sometimes that's very difficult to quantify...as would any professional service.

 

[FinanceDude]

I used an advisor for 2 years (1% at Principal Advisors) and then compared my results vs straight market index. The index funds won by about 2.5%. Then I thought long and hard and realized that once my account hit the 1M mark, I would be paying 10k a year to my advisor. The best job in my life never paid me $1000+ an hour.

Ok, but you realize that a Principal "financial Advisor" is really a life insurance agent, right?

 

[crazy connie]

Ok, but you realize that a Principal "financial Advisor" is really a life insurance agent, right?

Nope Finance Dude. Never once did I get that pitch. All of them do not do that. The San Diego office that I dealt with tend to stalk a few major employers early out cash balance retirees. The particular advisor I dealt with had about 30 of my former co-workers. I am his only defector the rest seem content to get marginal returns because they are "so nice to deal with!!!"

 

[FinanceDude]

Nope Finance Dude. Never once did I get that pitch. All of them do not do that. The San Diego office that I dealt with tend to stalk a few major employers early out cash balance retirees. The particular advisor I dealt with had about 30 of my former co-workers. I am his only defector the rest seem content to get marginal returns because they are "so nice to deal with!!!"

Was your company's401K with Principal??

 

[crazy connie]

Was your company's401K with Principal??

No, the 401k is inhouse as company is big enuff to do that or PCRA w/ Schwab. I put my pension rollover IRA with Principal and continued to manage 401k funds in a poor plan myself. I moved to the PCRA account earlier this year and now actively manage that and the rollover IRA.

 

[FinanceDude]

Principal is one of the biggest 401K providers in the US. They typically come to the plan sponsor and offer a "bundled product with NO fees", i.e. a variably annuity with funds.

However, "no fees" means that the company isn't charged TPA or management fees that are billed to the company. The Principal plans run from 2.5 - 3.0% a year internal expense.