Dimensional Fund Advisors

Dimensional Fund Advisors

Dimensional Fund Advisors

Dimensional Fund Advisors (DFA) now makes their low cost, institutional index funds available to individual investors through DFA approved registered financial advisors. This is a great opportunity for investors, because these funds were previously available only to institutional investors. DFA’s funds are designed based on the principles of efficient markets, diversification, asset allocation, and the relationship between risk and return. DFA works with many of the top academic financial economists who provide findings and strategies based on empirical research. DFA also minimizes trading costs that negatively affect portfolio performance.

Dimensional Fund Advisors

DFA funds provide investors with the following benefits:

  • Engineered exposure to risk factors that generate higher expected returns
  • Low expenses
  • Low taxes, including tax-managed index funds
  • Improved trading and engineering that adds value to portfolio construction
  • Low turnover rates due to the passive investing approach
  • Asset class persistence; no style drift


How can we be sure that DFA is not running a Ponzi scheme like Bernie Madoff?

The infamous Ponzi schemes over the last few years have rightfully alarmed investors. Bernard Madoff and Stanford Financial were able to defraud clients by avoiding safeguards that are essential requirements of registered investment companies (i.e., mutual funds). The following safeguards under the law are required of mutual funds and not of hedge funds:

  • Mutual funds are registered with the SEC as an investment company under the Investment Act of 1940
  • A mutual fund can only be advised (and sub-advised) by an investment advisor registered with the SEC pursuant to the Investment Advisers Act of 1940
  • The shares issued by a mutual fund are generally securities themselves registered with the SEC pursuant to the Securities Act of 1933 and regulated per the Securities and Exchange Act of 1934
  • Mutual funds must have a majority of directors who are independent of the manager, charged with obligations for oversight of the fund audit process, nomination of other independent directors, and fee approval.
  • Audited financial statements are required annually
  • Mutual funds must keep assets at custody banks in segregated accounts marked as “client accounts”, not subject to the banks’ own assets. This can be compared with some hedge funds that have had their assets caught up in the Lehman Brothers bankruptcy and must wait along with the other creditors for bankruptcy trustees to review their claims and return client assets

Index Fund Advisors (IFA) is one of the many RIAs approved to offer Dimensional Fund Advisors funds to individual investors. IFA provides special online services and resources that educate clients on the principles of investing, including a Risk Capacity Survey that matches individual investors with specific portfolios that yield optimal returns. This matching is achieved by carefully measuring an investor’s Risk Capacity™ and risk exposure. A Risk/Return Calculator and a Portfolio Simulator are also provided to compare the expected risk and returns of all 20 Index Portfolios to alternative investments.