I asked a similar question in the Investments forum, where I figure it will receive not much attention.
Anybody here know anything about what it’s like to be an advisor for Dimensional Fund Advisors? I know you have to go to their training in Austin or Santa Monica, but I don’t know if you have to have a B/D or RIA set up, or whether you have to be independent, or what not.
Share any thoughts or experiences you might have.
And I thought the CFA was hacksaw.
I know quite a lot about it…that damn cult.
Both reps from BDs and RIAs use DFA. But, if you don’t have $20mm to give them, they won’t work with you. Being a “DFA Advisor” just means you have completely bought into their system, not that you actually work for them…though you will sign a pledge that you’ll give them $20mm at the end of the DFA summer camp you’ll attend.
I love Booth, but DFA is the worst thing to come out of Chicago since Obama.
^so you have to own your own RIA or B/D to sell their stuff?
So if I partnered with a local B-D, I couldn’t sell their stuff on my own?
Sure, you can always purchase a DFA fund on your own, either through a BD (provided they’re available on their platform) or as an RIA. But if you do it yourself, you’re not a “DFA Advisor.” For that psuedo-title, you have to attend their band camp and promise them money. In return they essentially manage your book for you.
Aside from being a cult, the reason I’m strongly opposed to them is the manager risk associated with putting all your clients’ assets in one fund company. They will blow up one day…everyone does. When they do, they’ll take down a lot of RIAs.
I meant, “I can’t purchase DFA for my clients unless I own a b.d or RIA”.
In other words, I’m thinking of joining a local B-D who doesn’t sell DFA. If I go to DFA boot camp, can I sell DFA funds, or does the whole firm have to go to boot camp?
No, if DFA funds aren’t offered through the BD then you will not be able to purchase them. Honestly though, there aren’t too many BDs left out there that don’t have some sort of open architecture platform (basically everything’s available). If you wanted to tell me the BD I could probably shed some light on why they’re not offering DFA. Feel free to PM me.
Edit: Given where you live and your military history, I’d check out First Command. They run a good shop.
Sweep’s provided some good commentary and advice on DFA here, which I will add to.
I’m currently an IA (in Canada…so my commentary here may be slightly different than what happens in the U.S.) considering to use DFA or Vanguard as a potential investment strategy, so the thread in the investment forum has been interesting. I know a few Advisors who use DFA under a Fee-Based model to running a practice.
Yes you need to be approved to sell DFA funds and attend a two day seminar at your cost to learn about their investment strategy etc. I’d like to see some commentary on the advantages / disadvantages of a B D vs. RIA in the US, as I’m not familiar, with a focus on the regulatory changes on disclosure of fees etc. (Sweep?)
If you are seriously considering making a transition from Accounting over to Advisory, I’ve got some resources I could pass along to help you identify your market (i.e. client profile), investment stratgy and approach to planning.
I just wrote out a huge response and deleted it on accident…damn it. Short answer is the lines between an RIA and a broker-dealer are getting blurrier by the day. Every BD out there wants their advisors to move to a fee-based business just like RIA. Just about every BD offers a Rep as PM platform, just like RIAs use - that is, the advisor has full discretion on trades. The major difference remains the trade-off between the support you receive from the BD, things like compliance, legal, sometimes staffing, etc., where as an RIA is on their own. But, the RIA keeps all the revenue they generate vs a broker which gets a certain payout based on their production level. For example, a good producing LPL rep will pocket about 92% of their revenue. They pay the 8% for LPL’s support.
As for fee disclosures, I trust RIAs more just because they generally have a more straightforward business model. BDs are becoming increasingly concerned about fee disclosures too, so I’m not saying they’re doing anything underhanded, but you need to know a bit about their business to get the full picture. For example, one of the major independent BDs has a fee-based platform that uses load-waived A shares. So, no commission but they still collect the 12b-1 on top of their wrap fee. That’s a bit shady and the BD is moving away from that, but that’s a very difficult change to make for several reasons I won’t go into.
All in all, fee disclosures are getting much better across the board. Just look at the private REIT market. It’s crumbling because BDs are afraid of lawsuits (which they should be) because of the way private REITs pay brokers and how they report it to the investor. Basically, an investor puts $100k into a private REIT, the broker takes an 8-10% clip up front, but - and this is amazing - the investor’s statement will still show $100k even though there’s only $90k in the position. How the hell that’s still legal is beyond me, but that’s why private REITs, as we know them now, are dying a rather rapid death.
^ ok this helps.
So if Greenman goes into an existing RIA office then I assume he could use the existing framework in place for all the legal, compliance and (maybe if you can negotiate) staffing and keeps 92% of reveune and pays approx 8% to the RIA for support then. This, along with a move straightforward business model seems the way to go.
Then you need to determine what the practice looks like (or want to) in say 5-7 years? Who is the market or client base you want to work with? (i.e. business owners, age under 60, mass affluent market, high net worth, UHNI…) How many households do you want to look after? Total AUM/ AVG AUM? What services do you want to provide (Investments obviously using DFA I assume), do you want to hold an Insurance license, do you want to prepare tax returns as well? (Insurance and taxes would probably have to be seperate outside businesses with disclosure to client). How hard do you want to work, how many hours per week? What does your team look like? (I assume super hot assistant, mid 20s, great rack).
I could go on and on here…
Oh ya…Compliance is a real PITA; you don’t want to do this yourself. So 8% is a good value.
On the investment side, he could use the DFA model portfolios (they just increased their model portolio offering last Sept - in Canada anyway)
^In case you might have missed it…I’m not looking to transition from Accounting to Advisory. Rather, I want to do both.
I’m just trying to explore options, and figure out the route I want to go when I get there (which may be sooner rather than later). I read something recently that suggested that if you want to sell, you should look into selling DFA funds, because not many people sell them (none within 100 miles of me), and apparently a lot of people will do business with you solely because you’re affiliated with DFA.
Admittedly, I like DFA’s 3-factor model, and the fact that they’re passive, low cost, low turnover, but don’t necessarily adhere strictly to the commercial indices. But if you take away the value/small-cap tilts, I’m not really sure that they offer any particular advantage over regular ETF’s or funds. (See Magician’s link in the DFA vs. Vanguard thread.)
Based on what I’ve read here and other places, I think I’ll just team up with a local advisor. Probably even the same one my old boss used. He’s a B-D that uses Cambridge, and offers an AUM-type platform. But having the 7, 66, and state insurance licenses, he can also sell the insurance products when necessary.
From what I can tell (and Sweep can correct me if I’m wrong), RIA’s like to tout the fact that they have a fiduciary responsibility, which “ensures that they truly have the client’s best interest in mind”. In reality, the same AUM platform is available to B-D’s, and there will probably not be a dime’s worth of difference in the two portfolios or the fee structure. But B-D’s also have other products/services available to them. (And being a Texas CPA, I have a fiduciary duty anyway. This is why I’m leaning the B-D route.)
Pretty much, yep. You just have to determine whether you want to keep 100% of your revenue and handle all the BO type stuff yourself, or if you’re willing to cut a BD in on your rev to do it for you.
We haven’t even touched on the hybrid RIA model, but that’s generally established RIAs that need a BD to sell a VA or something. But, I can tell you from the hybrid RIAs I know, after running their shop their own way for so long, joining up with LPL/Cambridge/whoever has been a generally unpleasent experience. Granted, it’s one of the fastest growing segments of advisors, but most of the RIAs that go hybrid actually hate having to go through a home-office’s compliance department. Compliance is tough to do yourself, but once you have it under control it’s way better than having to get every newsletter you want to send out approved by your new BD overlord.
Yes I believe you can work as an Advisor on the investment side, either B D or RIA, and have a seperate outside business activity set up to do tax returns - (likely needs approval from the B D).
If you want to sell DFA than you need to be approved by DFA in order to offer their funds. DFA is lower cost, but not the lowest. You can put together a low cost strategy using Vanguard (like 15-20bps); however with Vanguard you won’t get some of the other (back office/admin) benefits of DFA funds. For example, (and I hate getting into the technicalities but its important) DFA will re-invest all interest/dividends back into the model portfolio with no sales commissions charged (either FE0 or NL if a Fee-Based Advisor) in addition to providing a realized gains/losses reporting at YE.
A Vanguard EFT would have to be set up as a DRIP plan and the B D you work with may only be able to reinvest full shares, not partial. Then you continue to build up a small cash balance over time that would need to be invested into the portfolio, likely when you rebalance. A Fee Based Advisor would have a minimum commission charged for the purchases which you would need to determine so you can compare the overall cost of each strategy. In addition, the B D may not provide a realized gains losses summary at YE which means either you keep track of this for the client, or they have to do it on their own, or their outside accountant.
These minor differences may not seem that big a deal, but believe me, they are. Back office and compliance take up alot of time. And $$.
That’s not entirely accurate. Any RIA or rep at a BD (where DFA funds are already available) can sell DFA funds without going through their bible camp. They just won’t have access to their model portfolios (though several BDs have model portfolios made up entirely of DFA funds - LPL for example), and they probably won’t receive any support from DFA’s wholesalers. There are plenty of advisors out there that only use one or two DFA funds mixed in with other mutual funds.
^ Hmm. Ok. I was told otherwise. We have a few big Advisors in our Branch using DFA and I’ve gotta go to TX or CA to bootcamp if I want to sell DFA - but their is more to the story here I won’t get into. I’m also in Canada and there may be different requirements than in the U.S…
The DFA wholesaler support is pretty limited in general and the quarterly review materials are not very good. DFA does not even offer a template for an IPS; I mean how hard is it to develop a IPQ (paper or web-based) and have a standard template for each model portfolio offered and just fill in the name of the client on the cover page.
From my experience, the best business model would allow you to keep down cost and streamline compliance. The industry is coming under more and more of a microscope in regards to disclosure of fees (including dealer and advisor comp), perforrmance reporting, FE vs. DSC sales commissions, etc. Keep it simple, full cost transparency, define your value to the client, charge a competitive fee - you will do awesome.
^This is really getting into the weeds, but from an operational standpoint it’s next to impossible to pick and choose who can purchase your funds at the rep level. If your fund is open to new investors and available on a platform, anyone can purchase it. I can promise you Merrill would laugh you out of the state if a fund company tried to pull something like that.
Now, what DFA has been amazingly successful at (much to my chagrin) has been selling their models to BDs. As an LPL advisor, you can choose to run your own book or use one of their many home office models. Some LPL put together themselves (my job is to get our funds in those models) and others are run by asset managers. BlackRock has one, JPMorgan runs one, and - at last count - 7 other asset managers including DFA had their own models in LPL’s system. So that’s another way an advisor could access DFA without becoming a “DFA advisor.” Though I guess you could say LPL is the “DFA Advisor” as they’re technically the administrators of the model portfolio.
Just for fun I tried to place an order in my brokerage account for a DFA fund and it allowed me to proceed (I cancelled, obviously).
^ Ya…again some head office issues which I won’t get into. DFA also told me the same thing.
^I guess it’s possible some firms would do this for DFA - especially considering the ungodly amount of assets they bring in. I may have to do a little recon this afternoon and see what’s what.
Regardless, if you are going to use DFA as your IM strategy, attending the two day seminar is a good idea.
You can learn more about the investment process and philosophy etc that will be useful when it comes time to explain to clients.
So what I’m hearing is this–the advantage of owning your own RIA is that you can control your own costs of compliance. And that’s about the only advantage.
If you’re willing to let someone take a cut of your pay, then there’s no reason NOT to go B-D.
Either go 100% RIA (not the hybrid model) or go B-D. But hybrid RIA is the worst of both worlds.