Dimensional Fund Advisors is notorious for not marketing to financial advisers, instead requiring advisers to take the initiative and do some homework to even be considered as clients. But that does not mean the $240 billion mutual fund company is not focused on growth.
DFA is expanding its services for US 401(k) retirement plan participants and is targeting Asia to grow its pension business, said David Booth, co-founder of the Austin, Texas-based firm, in a rare media interview with Reuters.
Over the past several years, DFA has opened offices in Australia, the Netherlands, Canada, England, Chile and most recently in Germany. Now the firm is looking to open offices in Asia, although it has not yet determined where, Booth said.
Initially, the firm wants to be in Asia to serve the institutional market, which is growing rapidly, Booth said, who spoke to Reuters this week at the Tiburon Strategic Advisors CEO Summit in New York this week.
Ultimately it may branch out into the adviser market. In the United States, the firm is focusing its efforts on the 401(k) market.
Last summer, DFA introduced its first tool for employers with 401(k) plans that will automatically allocate an investor's assets and contributions after the participant plugs in factors such as the amount they are willing to save per paycheck and how much money they hope to have to retire.
The idea is to make 401(k) plans more like defined benefit plans, in which employees never had to make any decisions, Booth said. "Right now everyone has moved to target date funds, and those have turned out to be a disaster," Booth said. Many of those funds were riskier than investors initially believed and suffered from huge losses during the financial crisis.
"The fact of the matter is most people are like me and don't look under the hood," he said. "When we got involved in this tool I realised I hadn't looked at my plan balance for years."
Going forward, DFA is discussing creating additional tools for employees close to or already in retirement. "Retiree income is a big issue and we will be developing something, Booth said.
It is not often that a mutual fund company requires financial advisers to be interviewed before they allow them to sell their funds. But that is exactly what Dimensional Fund Advisors does and then some.
In addition having to participate in a phone interview with the firm, advisers then have to pay to attend a two-day seminar to learn about DFA's investment philosophy.
And even after DFA accepts an adviser as a client, if the firm finds the adviser is rapidly trading the funds, they will that adviser be allowed back in.
"We want to protect our current investors more than we want to attract new clients," Booth said.
Booth attributes much of the firm's success to its selectivity. The thinking is that if advisers really buy into the DFA philosophy, they are more likely to ride out the tough years. DFA has never had a year of outflows, not even during the financial crisis.
Booth founded DFA out of his Brooklyn Heights brownstone in 1981. The firm's investment philosophy is based on the idea that all markets are efficient, which Booth studied as a student of Eugene Fama at the University of Chicago Graduate School of Business - renamed the University of Chicago Booth School of Business three years ago after the money manager and his family donated $300 million.
The firm's quasi-passive approach has worked for the firm. Thirty-four of the firm's 40 funds with 10-year track records are in the top half of their categories, according to Morningstar. More than half of the firm's funds with five year track records have been in the top half.
One area that DFA will not be getting into: exchange-traded funds. While ETFs offer investors an inexpensive way to access the markets, Booth prefers index funds.
"We have thought about it but I don't see a compelling reason for intraday liquidity," he said. "But for those who do, this at least makes the gambling casino odds in your favour."
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