Seldom do I take the time to respond to articles where I have a different opinion. I could waste most of my time everyday if I tried. However, as my company is about to host an investment presentation where we talk about the “DFA Advantage,” I felt that a reply to this particular article was relevant and timely. A recent Wall Street Journal article attempts, very poorly, to criticize the money management firm Dimensional Fund Advisors. I am referring to a March 5th article titled, “DFA Funds Are Booming; But That Advisor Fee Matters.”
The article might be behind a paywall and inaccessible if you’re not a WSJ subscriber, so let me summarize. The author makes two main points:
First, that the DFA funds beat their benchmarks over time. That is great! Very few funds can state that. In fact, in the industry as a whole, only 15% of funds beat their benchmark. DFA sees 82% of its funds accomplishing the feat. The author of the WSJ story basically makes the point that DFA is superior to index funds and ETFs.
I completely agree with this first point; that DFA is the best mutual fund family when measured across the entire line up of funds offered.
The author then follows up with a second point, that the superior performance of DFA is not enough to cover the fees charged by financial advisors. True, if your adviser is simply dumping you into a portfolio of DFA funds, and nothing more, the author is probably right.
However, the article fails to provide a realistic perspective of the scope of services that a typical client receives from a true independent CERTIFIED FINANCIAL PLANNER(™) Professional.
The first set of services are specifically investment related, portfolio management services. This includes defining a suitable asset allocation, systematic rebalancing, tax-based asset location, and behavioral coaching. Vanguard, the large provider of index funds, which investors can access without an adviser, published research which calculated that those investment related services can add about 3% in annual returns over a “do it yourself” investor.
The second set of services falls under a broader umbrella commonly defined as wealth management. This includes estate planning, tax related advice, retirement planning, education funding, cash flow management, and any number of other topics. The author pays lip service to this in passing, but it’s not a small matter. Many firms provide these services without additional charge along with the investment management fees. Client who pay for these services independently of the investment fees typically pay in the thousands to tens of thousands of dollars. In other words, it’s valuable advice.
I won’t speculate as to why the WSJ published the article. It is obviously an attempt to discredit DFA and the advisors who recommend them. I would expect the editors of the WSJ to see right through the bias and never publish the article in the first place. It is worth noting that the author’s last job was working for a competitor of DFA.
It is too bad that we are seeing a publication like the Wall Street Journal seep into the bowels of the fake news movement.