Asset Builder: https://assetbuilder.com/
Asset Builder I suspect is an robo-advisor many Bogleheads might consider, especially those that migrated from the older indexfunds board where DFA was lauded. DFA, Dimension Fund Advisors (http://us.dimensional.com/
), is Ken French's and Eugene Fama's mutual fund company. They had been for a long time the head to head competitor of Vanguard in passive investing before passive became mainstream. Vanguard has traditionally seen cost as the number one enemy of return and has focused on simple funds that could run as inexpensively as possible. DFA embraced passive and held down costs but was willing to incur higher costs for strategies that were likely to outperform. They are arguably the original smart beta / factor investing house, applying the ideas from academic finance directly in mutual funds long before these ideas are broadly accepted. Their funds are notoriously excellent, though many of the strategies have had problems scaling as DFA has grown to a top 10 mutual fund provider. Unusually for an open ended mutual fund company, DFA will not sell directly to investors but rather all funds are held in institutional accounts at select brokerages (most commonly Charles Schwab) in the customer's name and managed by a select group of approved advisors. These advisors sell almost exclusively DFA whenever there is an acceptable DFA fund, and share DFA's philosophy of investing. In comparing DFA to Vanguard funds generally the DFA fund outperforms by quite a bit before expenses due to more sophisticated trading and still some after expenses. An investor who is affectionate towards Vanguard should have no concerns about DFA unless they are opposed to factor investing, in which case they should have grave concerns.
Asset Builder is the robo-advisor approved for DFA. The firm was founded by the newspaper financial columnist Scott Burns. Like most DFA advisors the accounts are held at Schwab. Asset Builder charges 45 basis point fee (dropping lower at higher balances, example 30 basis points at $1m). DFA sells mutual funds not ETFs. For mutual funds DFA is more expensive than Vanguard's mutual funds and Blackrock, SSGA ETFs. So while DFA is still cheap by mutual fund standards expect another 25-48 basis points in fund fees vs the average of 12 basis points for most of the competition. Further these funds do not pay 12b-1 fees (the funds mutual funds pay to brokers to offset their costs) so there will be another $100 / yr in Schwab transaction fees for rebalancing ($20 per trade). The fees are cheap by human advisor standards but somewhat higher than the other robo advisors we have been considering. The minimum for an account is $50k, much higher than any other robo advisor we are considering in this list.
As in the other examples here is a 70/30 portfolio. This ranks a 10 out of 14 on Asset Builder's portfolio construction matrix for aggressiveness.
Fixed Income: 30%
20% / DFIHX -DFA Dimensional 1YR Fxd Inc
10% / DFGFX -DFA 2 Yr Global Fixed Incm Port
U.S. Large: 10%
5% / DFLVX -DFA US L/C Value Portfolio
5% / DUSLX -DFA US Large Cap Growth
U.S. Small: 20%
11% / DFSVX -DFA US Small Cap Value
4% / DSCGX -DFA US Small Cap Growth
5% / DFSCX -DFA US Micro Cap
REIT 11% / DFREX -DFA Real Estate
7% / DISVX -DFA Intl Small Cap Value PT
6% / DISMX -DFA Intl Small Cap Growth
8% / DFEVX -DFA Emerging Markets Value
8% / DEMSX -DFA Emerging Markets Small Cap
Asset Builder does have a list of Vanguard Based portfolios that they recommend for people who don't want to hire them to implement via. a DFA portfolio. For example for something like the 70/30 portfolio above they would recommend (note this portfolio is heavy in TIPS demonstrating Scott Burn's preference).
14% / VIPSX -Vanguard Inflation Protected Securities
14% / BWX -SPDR Barclays Intrntl Treasury Bd
14% / VTSMX -Vanguard Total Stock Mkt Idx
14% / VIVAX -Vanguard Value Index
14% / VGSIX -Vanguard REIT Index
14% / VGTSX -Vanguard Total Intl Stock Index
14% / VGENX -Vanguard Energy
If we benchmark, we will benchmark both portfolios during this round of tests.
Some of these are funds I would love to hold personally: DFSCX and DEMSX are insanely good funds, all of them are at least as good as the indexes. One can see immediately the typical 4x4 approach (holding large cap value, large cap growth, small value, small growth separately) that DFA advisors are fond of which lends itself well to rebalancing and ends up being a light sector rotation strategy in practice. This is in contrast to Vanguard's philosophy of holding a less expensive more tax efficient total market index and potentially supplementing with dedicated smaller cap funds. There is a definite tilt to small value. This is noticeable both by the 11% weighting towards DFSVX (small cap value) and the small value tilt many of these funds have internally for example DFREX (the REIT fund).
The microcap fund (DFSCX) holds stocks much smaller than most mutual funds or ETFs would even consider, very illiquid stocks that need to be traded in and out of over many weeks to avoid paying huge spreads. The sort of assets the SEC would normally consider too illiquid to even be in an open ended mutual fund. This has been a flagship fund of DFA's for almost 2 decades. 20 years ago when I was looking for a similar fund Franklin-Templeton was the only other company operating at those sizes and that fund could only be bought with a load. I seriously considered paying the load. And I"m not alone, those sorts of funds won them the many billions in business they now enjoy.
Having seen many DFA advisor portfolios this looks like what one would get from the lower end of DFA advisors who aren't customizing the portfolios much to each client. I can't object at all to the portfolio design that Asset Builder is using, this is what DFA preaches. I don't love the lack of alternatives investment and lack of stronger non-correlating asset classes, but that's fairly standard for vanilla DFA portfolios. It should be noted though that many of the better DFA advisors supplement DFAs offerings with stronger non-correlating assets. I'm not sure DFA would permit their first (only) robo service to stray from the vanilla DFA approach. For example you'll notice this portfolio lacks TIPS yet that is one of the assets Scott Burns' portfolios are known for. You see it in the corresponding Vanguard portfolio where he has a freer hand.
Other than portfolio this robo-advisor seems to be lacking. There is no investor portal. There are no higher end brokerage integration with Schwab. Those are mild negatives. However devastating for a robo there is no mention of aggressive tax loss harvesting. Frankly I suspect DFA would throw a fit about the frequent trading in and out of their funds needed to accommodate meaningful tax loss harvesting like WealthBuilder uses. So AssetBuilder may never get this feature while all the other robos are rapidly evolving towards having it.
DFA considers human support mandatory and is very picky about advisor quality. AssetBuilder has been around for years since before they offered a robo. With the addition of a robo service they are going to be under more scrutiny from DFA not less. So these are going to be human advisors one can trust on the basics far more than most robo-advisors, and more than most human advisors.
At higher balances the fees for AssetBuilder are in line with what you would pay for one of the lower cost companies to build a DFA portfolio and provide support like Evanson Asset Management (https://www.evansonasset.com/
) (I can recommend) or Cardiff Park (http://cardiffpark.com/
). What this robo-advisor does is create a cost effective way to service DFA style portfolios in the $50k-250k range. At balances below that you don't qualify for Assetbuilder and at balances above that you may be are better off going human and getting more support. I don't know AssetBuilder well enough to compare to the lower cost options but it is worth mentioning at $250k those are the same price. So weirdly my review of this robo is that I like the portfolio, I love the funds but I just don't see any advantage to picking this robo advisor over a human advisor for DFA funds unless you are in the $50-250k range. If you are in that range AssetBuilder's robo opens a door that used to be closed. You don't really get robo advisor features but you like do get some level of human financial advisor features. Moreover you start a portfolio you can transfer as it grows to some of the best financial advisors and financial planners in the country without having to pay capital gains taxes. Might it be the case that this becomes the recommended financial advisor for people in the $50-250k while not the recommended robo advisor?
DFA invented passive factor investing /smart beta before passive factor investing was cool. Our backtest (if we do AssetBuilder since arguably you aren't really buying a robo service) will show DFA's long history of outperformance. They continue to do the research to stay ahead of the competition, not focusing on what's cool now but instead looking to what will have been proven to outperform in 2040. But DFA isn't alone anymore. WisdomTree, Blackrock Goldman Sachs, Oppenheimer, JPMorgan... (with many more to come) are all looking at ways to develop new smart beta approaches. Vanguard and SSGA are going to be trying to figure out how to capture 80% of those same advantages at 20% of the cost. DFA won the argument, but in winning the argument have they killed their crucial advantage. To beat the market and you need to be different and you need to be right. Both objectives are harder today for DFA than they were a generation ago. Today their asset bases are huge, they can't be nimble anymore while smaller ETF smart beta house can. AssetBuilder is asking for 50 basis points beyond most robo advisors cost for DFA's brand of smart beta. Can DFA stay 50 basis points ahead of the competition in the decades to come? Will smart beta without the gimmicks work well enough going forward to overcome the fee drag, and ironically enough DFA's difficulty in deploying huge capital? There is simply no way to answer that. There is more reason to be concerned because on some of this portfolio the 30% fixed income and 10% large cap its hard to imagine any possibility of an extra 50 basis points. I don't have much problem believing their smallcap EM Value fund could do 200 basis points better, but that's 8% of the portfolio. DFA doesn't sell their funds in isolation, which is why I'm not a DFA customer. Vanguard often talks about how all great active management houses have reverted to the mean before fees, while returns are computed after fees. Could the same apply to the king of passive investing outperformance?
History will tell. But ultimately what to do with AssetBuilder comes down to how one feels about DFA. DFA is a mutual fund house you can trust both to be ethical and to be competent. Their advisors similarly are ethical and competent uniformally. I know that if I ever lose the ability to manage my own finances I'm likely picking a financial manager from the DFA approved list.