DFA and the additional return achieved for advisor sales pitch

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bogleviewer
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DFA and the additional return achieved for advisor sales pitch

Post by bogleviewer » Wed Oct 11, 2017 12:18 pm

I've noticed positive comments, in general, about Dimensional Fund Advisors (DFA) here on the Bogleheads forum. However, I'm a bit confused about how they can achieve greater returns than comparable Vanguard index funds while seemingly same risk.

For example, the Vanguard S&P 500 Index Fund and the DFA S&P 500 Fund are nearly identical in returns with a few bps difference, however, the DFA fund returns already accounts for an average 1.00% advisory fee. In other words, the DFA S&P 500 fund may have matched the return of the Vanguard S&P 500 Index fund net of fees, but somehow was able to gain an extra 1.00% to pay the advisory fee. I'm certain that this is a big sales pitch from advisers "you get me for free. If you are mainly in index funds now I can do the same thing at no additional cost to you while you get access to my knowledge, experience, etc."

How is this possible? I understand that DFA S&P 500 is not an index fund, so what is it? Wouldn't they have to take on more risk to get that additional 1.00% return so you are in fact taking on more volatility for same (or better) potentially cherry picked time periods to compare against Vanguard equivalent? Or is the DFA S&P 500 Fund and Vanguard S&P 500 Index Fund not equivalent?

I guess i'm a bit confused because here on Boglehead Forums people really like DFA, but it almost sounds too good to be true: an adviser for essentially free while not increasing risk/volatility. The other thing my small mind thought of is that maybe there is more turnover so you are in fact quite a bit behind because of taxes?

To have no additional risk and achieve the same return while having an adviser sounds awesome, which is what makes me nervous.

Any enlightenment from the Boglehead crowd on your experience with DFA vs DIY Vanguard?

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triceratop
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Re: DFA and the additional return achieved for advisor sales pitch

Post by triceratop » Wed Oct 11, 2017 12:22 pm

The published returns of DFUSX are not net of advisory fees, only fund expenses.
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livesoft
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Re: DFA and the additional return achieved for advisor sales pitch

Post by livesoft » Wed Oct 11, 2017 12:41 pm

Did you see the two threads on DIY vs DFA that were active in the past 2 weeks?

Here is one of them: viewtopic.php?t=229085
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heyyou
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Re: DFA and the additional return achieved for advisor sales pitch

Post by heyyou » Thu Oct 12, 2017 1:26 am

I'm certain that this is a big sales pitch from advisers "you get me for free. If you are mainly in index funds now I can do the same thing at no additional cost to you while you get access to my knowledge, experience, etc."
Any given DFA approved advisor can say and do and charge whatever they choose to in their personal business--flat fee or 1% AUM, market weighted or small & value tilted portfolios, etc. It is likely that some of them will boast about DFA in order to get your assets under their management. Beware of how exclusiveness appears to be special, aka grass looks greener on the other side of the fence. Where you heard a DFA advisor suggest that DFA would outperform VG by 1% so the fee was covered, is not an advisor that I would choose. That sounds like a car salesperson's spiel. When he finds out your wife's first name, expect for him to say that was his mother's name.

There are flat fee advisors with DFA access who do not charge 1% of assets under management (AUM). They usually offer equal sliced, cookie cutter equity portfolios with bond allocations that suit your perceived risk tolerance. For retiree sized portfolios, the fixed fee can be less than the amount of VG"s PAS .3% of AUM fee.

Paul Merriman has DFA access and Boglehead Trev H devised a portfolio of VG funds that mimicked Merriman's Ultimate Buy and Hold Portfolio of 10? DFA funds. Trev H used 25% each of VG's LB, SCV, ILV, and ISB funds. That is a DFA advisor style portfolio using low cost VG funds. Since most VG funds are broader than the more focused DFA funds, that portfolio takes advantage of what is usually seen as a disadvantage.

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