Why DFA Is a Strategic Partner of Our Mission

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As most of our investors and readers can probably tell, we're big fans of Dimensional Fund Advisors. Indeed, Dimensional is prominent in our recommended mutual funds lineup.

As true fiduciaries to our clients, we're focused on putting their interests first. This means we only strike strategic alliances with firms aligned with our mission to educate and enrich the financial well-being of investors through a passive investing approach.

Along those lines, we don't accept revenue sharing arrangements of any sort, from Dimensional or any other outside asset-management partner.

So why do we prefer Dimensional -- which is sometimes referred to by its acronym, DFA -- to other leading index fund providers? After all, a majority of investors are probably more familiar with fund families like Vanguard or BlackRock's iShares.

(And certainly, many financial advisors who claim to follow a passive investment discipline exhibit little inhibition about incorporating a virtual cornucopia of passive strategies from Vanguard, iShares and others.)

Our reasoning is very simple: Dimensional has proven over time to our investment committee that its process gives IFA clients their best opportunities to capture the differing dimensions of expected return as compared to the likes of Vanguard and iShares.

By relaxing the strict standards of adherence that is required for traditional index investing, Dimensional can take a more cost-effective approach of tracking a particular segment of the market without sacrificing the overall purpose of the investment strategy.

But there is more to this story. Past performance is no guarantee of future results. To put it succinctly, Dimensional's investment process – how it constructs portfolios and executes on any given strategy – gives us confidence that our clients will benefit over time by investing in IFA Index Portfolios designed with Dimensional in-mind.

Organizational consultant and author Simon Sinek has studied how consumers make purchasing decisions based on why companies do what they do -- instead of what they actually make (or do in the marketplace).

For example, Sinek finds that many of Apple Inc.'s best customers aren't advocates simply because the computer giant makes tablets, phones, watches and such high-tech devices. Instead, his work points to a common thread: Its strongest consumers tend to appreciate the same things that Apple values as a company.

To Sinek, the company's popularity in the past hasn't been only about people wanting to buy high-tech gadgets. After all, he reasons, many different rivals sell computers and competing technologies. Rather, Sinek asserts that buyers are intrigued by Apple's mission of constantly producing products that challenge the status quo with elegant, intuitive designs that are extremely user-friendly.

Likewise, when investors look at Dimensional's website, you'll find an overriding emphasis on research. A guiding philosophy of Dimensional's mission -- as outlined in its literature presented front-and-center to investors -- is  that "dimensional investing is about implementing the great ideas in finance for our clients."

Instead of "futile forecasting or trying to outguess others," Dimensional adheres to an investment philosophy steeped in drawing from "information about expected returns from the market itself" to understand how "the collective knowledge of its millions of buyers and sellers set security prices."

Such an evidence-based process "frees us to spend time where we believe we have an advantage, namely in how we interpret the research" and manage portfolios, Dimensional explains.

The funds provider also publicly states such an investment strategy "means we take a less subjective, more systematic approach to investing – an approach we can implement consistently, and investors can understand and stick with even in challenging markets."

This follows IFA's own way of designing globally diversified portfolios. Just like Dimensional's fund experts, we understand that active management -- where managers try to time markets or pick winners – doesn't present investors with the best chance over time to gain the greatest market returns, net of fees.  

Along those lines, it's also worth noting that Vanguard and BlackRock (the parent of iShares) – along with a multitude of other indexing rivals -- have their own families of actively managed funds.

In other words, Dimensional has impressed us for not straying away from its core market strategy and evidence-based investment process in order to sell product.

At IFA, our passive investing strategy is guided by facts, not speculation.

Dimensional shares these views and continues to provide investors with broad exposure to the key factors influencing long-term returns.

As a result, we think that ignoring (or lightly parsing) Dimensional's funds as part of a geographically diverse and multi-asset class portfolio would be akin to breaching our fiduciary duty to IFA's clients.

This article is provided for informational purposes only, and is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal.