Do DFA advisors get kickbacks?

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privatefarmer
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Do DFA advisors get kickbacks?

Post by privatefarmer » Mon Nov 13, 2017 3:14 pm

Do DFA advisors receive a kickback from DFA for putting clients money into funds?

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arcticpineapplecorp.
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Re: Do DFA advisors get kickbacks?

Post by arcticpineapplecorp. » Mon Nov 13, 2017 3:21 pm

what do you mean as a kickback? You pay a fee to an advisor who is authorized to use DFA funds. The advisor gets the fee you pay (usually up to 1% of AUM but this may vary) and DFA charges an expense ratio based on the funds you invest in just as Vanguard does.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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whodidntante
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Re: Do DFA advisors get kickbacks?

Post by whodidntante » Mon Nov 13, 2017 9:09 pm

AFAIK DFA does not engage in revenue sharing (kickbacks).

Nate79
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Re: Do DFA advisors get kickbacks?

Post by Nate79 » Mon Nov 13, 2017 9:33 pm

I don't think they charge 12b-1 fees if that is what you are asking.

sport
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Re: Do DFA advisors get kickbacks?

Post by sport » Mon Nov 13, 2017 10:51 pm

If a DFA advisor sold you a non-DFA fund that had 12b-1 fees, then it seems the answer would be yes.
Do they sell non-DFA funds?

Phil DeMuth
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Re: Do DFA advisors get kickbacks?

Post by Phil DeMuth » Tue Nov 14, 2017 11:51 am

I haven't been to a DFA-sponsored conference in years, but as I recall you are lucky to get as much as a 19-cent plastic ball point pen out of them.

heyyou
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Re: Do DFA advisors get kickbacks?

Post by heyyou » Tue Nov 14, 2017 1:06 pm

Haven't looked in 15 years, but Fidelity sold "advisor class" funds with a .25% annual kickback to the advisor who put my money in that class of funds. If that is your question, then no, DFA does not have that class of their funds.

EvelynTroy
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Re: Do DFA advisors get kickbacks?

Post by EvelynTroy » Tue Nov 14, 2017 6:51 pm

privatefarmer wrote:
Mon Nov 13, 2017 3:14 pm
Do DFA advisors receive a kickback from DFA for putting clients money into funds?
I've worked with two DFA advisors - not one complaint, watchwords in my opinion integrity, character, and fiduciary. Never a doubt they had my best interests at the forefront. DFA approved advisors are a select group - you don't just sign-up to be one.
That said, your question in my experience both advisors recommended other funds besides DFA, i.e. Vanguard, Bridgeway, and in my case a couple of retail bank CD's where they found good rates. But mostly DFA funds.
DFA funds do not have 12b1 fees associated with them, they do have an expense ratio (which is always reasonable) associated with them as all funds or ETF's do.
The DFA advisor will have a fee structure - the advisor is in business to make money. Different DFA advisors have different fee structures. A common one is AUM (assets under management) - the advisor receives a fee, a percentage of the assets they are managing for you - could be 1% of the amount you have invested with them, or less, or possibly more.
DFA is not receiving a "kick-back" or some amount of money for the DFA approved advisor recommending and placing you in DFA funds.

That was my experience - hope its helpful.
Evelyn

Random Walker
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Re: Do DFA advisors get kickbacks?

Post by Random Walker » Tue Nov 14, 2017 9:03 pm

I too have an independent fiduciary advisor. The company uses DFA funds in addition to a few others. To the best of my knowledge there is no financial incentive for the advisor to use the DFA funds. If there were, I expect they would have been legally obligated to reveal that to me in writing or orally.
This brings up a couple of important points about hiring an advisor. The advisor should be independent and held to fiduciary standard of care. This means obligation to do what is in client’s best interest. Also there should be 3 separate entities involved: the independent advisor who advises and performs transactions in the account, the mutual funds that are held in the investor’s account, and a separate independent company that holds the investor’s acccount.

Dave

LucyB
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Re: Do DFA advisors get kickbacks?

Post by LucyB » Wed Nov 15, 2017 9:39 am

We were with a DFA advisor for several years. The advisor disclosed that DFA provided certain benefits to support the organization, including analytical portfolio software to analyze portfolio diversification parameters and optimal portfolio construction. It was set forth in multiple places including the annual ADV filing with the SEC. I suggest reviewing the ADV filing at www.adviserinfo.sec.gov. I hope that helps.
The above comments are merely an expression of personal opinion and should not be considered advice in any form—tax, legal, financial or otherwise.

MN Finance
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Re: Do DFA advisors get kickbacks?

Post by MN Finance » Wed Nov 15, 2017 1:45 pm

Generally, the broader question is whether or not the advisor is an RIA, and NOT also a dual registered broker. It's the broker licensing that legally allows the advisor to receive compensation beyond the direct advisory fee.

I'm an advisor. We are not dual registered. I could use a fidelity advisor fund (as used previously as an example) and despite that fund containing 12b1 fees, I'm legally not able to keep that fee. That fee could be received by a parent organization or entity with different licensing but not the RIA itself. In our case that fee would be retained by the custodian (e.g., TD, Schwab, etc.)

DFA, like VG, does not engage in revenue sharing (at least not with advisors... I suppose they could in a 401k environment, but don't know that answer.) So, if someone is dual licensed, they have an incentive not to use DFA or VG. If they are singularly an RIA, they don't have incentive either way, but would likely choose funds without revenue sharing.

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whodidntante
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Re: Do DFA advisors get kickbacks?

Post by whodidntante » Wed Nov 15, 2017 1:49 pm

MN Finance wrote:
Wed Nov 15, 2017 1:45 pm

DFA, like VG, does not engage in revenue sharing (at least not with advisors... I suppose they could in a 401k environment, but don't know that answer.)
My corporate 401k has a DFA fund and I know that DFA doesn't do revenue sharing with my plan. I've never heard of any revenue sharing from DFA. It would seem to be against their business model.

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