The more I hear, the more I’m disinclined to contact DFA. It’s not that I don’t like the process or philosophy, but it sounds like it’s just a giant headache and a lot of up-front costs. And you can more or less replicate the small/value tilt strategy using iShares ETF’s. I just don’t think the alpha is there to justify the extra fees. (MY fees to attend the conference, that is.)
And I imagine that, in practice, clients won’t know or understand the 3-factor model anyway. They just want to pay you so they don’t have to understand it. If they understand it, then they would probably be doing their own investing, and not want to pay an advisor. (Somebody tell me if I’m wrong.)
Well, I tend to like the RIA model a bit more so I see some other advantages to their setup than just cost control, but broadly speaking, yes, you’re pretty much correct.
The hybrid model works really well for big RIAs that are buying up other practices. Many times an RIA will bring a team over from a BD and those new additions will have been used to selling products not offered through a traditional RIA setup.
When evaluating BDs, be sure to note that some setups require you to be an employee and others you’re still a business owner and a franchee. You most likely want to do the latter.
Yes most clients don’t really understand …well anything really. Most all investors don’t have the time, (investment) skill set or ability to take their emotions out of investment decisions. The do-it-yourself investors think they more than you anyways, so they are not good clients and you really don’t want them as clients. And remember, investment management is only one component; you still need to talk about the planning (goals, current situation, financial, retirement, insurance, tax, estate planning) - where the do-it-yourselfer wouldn’t have any experience or expertise.
Deciding on a business model isn’t easy. You need to talk to some B D and RIA Advisors who you are considering to learn about how they manage their practice and if you think it would be a good fit for you, once you decide on what model you think is going to work. At the same time, think about your client profile, your approach to prospecting and explaining your process to them.
The cost of attending the two day seminar wouldn’t be very much. You could probably drive there and just pay for the hotel. I’ve heard meals are covered.
^It’s not so much the cost of the two-day seminar. I’d have to open up my own shop, which I’m reluctant to do at this point. I’d much just be a subcontractor for one of the local BD’s. And nobody around here sells DFA.
At some point in the future, I may decide that I actually do want to drive my own boat. But that’s still a long way off.
You could even look at the option of succession planning with a local BD. There are plenty of Advisors in their mid to late 50s who are likely getting to retire. You could join their practice as as Advisor with the intent to buy them out over a time period. In this case you would want to have the same IM philosophy and approach to WM.
They could bring you on as an Advisor to help manage their existing practice and you could even get your own rep code (or however it works for U.S. BD) and start to build up your own client base.
And I’m sure that you have an extensive list of prospects from your previous jobs that you could call on. (For fun, you could just make up a list of prospects that you think would sign up with you if you went to a BD, and estimate if possible their portfolio size).
I’m sure there would be BDs that would love to bring you on given your background.