DFA, from its institutional roots founded in 1981 by University of Chicago alum David Booth and Rex Sinquefield, is visibly responding to market pressures and has announced rate cuts in 77 mutual funds. While the decreases are modest in light of recent fee compression, as important to note, they have left the door open to entering the ETF market.
We have analyzed the competitive landscape for DFA funds and other fund families as well via our competitive intelligence tool and it remains an open question whether the decrease in fees is enough to stave off competition from across the 20 fund families of ETFs and index funds that are directly completing to provide investors with the same type of returns.
DFA has remained steadfast within their investment focus where “Research has shown that securities offering higher expected returns are certain characteristics, which we call dimensions. To be considered a dimension, these characteristics must be sensible, persistent over time, pervasive across markets, and cost-effective to capture.” (DFA homepage)
Their long-term, low trading focus has served them and their clients very well. However, advisors are increasing trading to be more repsonsive to market conditions and financial planning events while there continues to be an economic pressure on fees within the industry. With increased trading, there comes fees for round trips within the custodian platforms. So, while DFA advisors have typically held their positions for longer periods, it remains to be seen if the increased trading and higher platform fees have any significant impact. The drumbeat of fee competition is something that they hear daily and have demonstrated the willingness to act.
DFA has been successful without the limelight however no firm today is immune to some of the recent competitive pressures and every basis point makes a difference. They are working to respond to more recent market-driven technology investment initiatives such as the program created to work with Betterment for Advisors.
History has shown us that competition through more choice does create better opportunities and economics. The RIA market continues to grow with the flight to independence and advisors are committed to improving and streamlining their investment process.
We consult advisors who are looking to improve their investment selection and create direct head to head comparisons of their providers, DFA stalwarts or otherwise, to ensure they’re helping the advisors make better business and investment decisions.