How is it that a firm that does minimal marketing and will not allow retail investors to obtain their funds directly, has expanded into one of the largest mutual fund companies globally? The answer may lie in their ability to screen and educate Registered Investment Advisors who wish to become approved DFA advisors.  In order to become a DFA advisor, one must become approved by the company and must attend a two day seminar.  At the seminar the investment advisor will learn quickly that this is not a sales pitch to sell product to their clients.  Rather, it is indoctrination to a philosophy based on low cost passive investing.  While there is no formal commitment required by the investment advisors, it is clear there’s an approval process, and DFA handpicks which Registered Investment Advisors are going to be added to the list of approved DFA advisors.

Most mutual fund companies are different than DFA. The company began in 1981 at the University of Chicago with an idea about increasing returns through the science of capital markets and portfolio design, versus stock picking and market timing. The company had over $200 billion under management by the end of 2010, which is significant growth.

The handpicked DFA fund advisors in Glenview have a tendency to adhere to the philosophy of long term investing and, unlike other advisors, they stay away from trying to “time the market”.  This benefits DFA by not having assets move in and out of funds which could adversely affect returns by adding transaction costs.  A DFA advisor also understands how marketing expenses, high manager salaries, and transaction costs can reduce long term returns.

Years ago a financial advisor noticed the exceptional returns of the DFA funds while doing research on emerging market funds.  He made a decision to invest and routinely placed a “buy” ticket on behalf of a client. He was surprised to find out that the trade was rejected because he was not considered a DFA advisor.  Despite a long history of advising clients and managing wealth to the tune of many millions of dollars, he was, understandably, incensed.  Upon further examination he discovered that before he could become a DFA advisor, he would have to meet with company representatives, discuss his investing philosophy to determine whether it matched that of the company, and attend their seminar.  He became a DFA advisor and has implemented DFA funds for his clients for years. For more information about DFA fund advisors, click here.