I was first introduced to Dimensional Fund advisers in the summer of 2007. At the time they were one of the only fund managers in the UK who did not pay commission to intermediaries. A USP of “we only deal with fee-based advisers” was a natural fit for our fee-only Financial Planning Consultancy.
However, the retail distribution review in the UK banned investment commission. Effectively a message of “we only deal with fee-only advisers” became overnight
“We deal with advisers”
We were the first clients of
Dimensional in Ireland to place client money into their funds with our first deal 10 years ago in Sept 2008.
There are a couple of parts to the Dimensional story.
The most credible part is the links to the university of Chicago (the board includes several noble prize winners)
It’s true that tilting a portfolio to higher expected return parts of the market works in theory and at least historically.
So, yes, it is likely that a multi factor portfolio will outperform an index portfolio before costs.
The implementation is therefore key.
DFA found that advisers struggle to construct and manage portfolios based on the underlying building blocks.
So a few years ago they launched a fund of funds called World Allocation.
These funds lack the sophistication of the original proposition we launched to the Irish market and still use to this day.
They make concessions and are more expensive than newer entrants from Vanguard and others.
The world has moved on and it’s very possible to replicate any of these strategies (and we do see attached sharpe ratios) at lower cost or with more tax efficiency although they certainly still have their place in a diversified pension or ARF portfolio.
To be fair to DFA when they launched in Ireland their Vice President did say and I quote “we are just a commodity, if something better comes along we are interchangeable”
You rarely get that level of honesty and humility in financial services