Very thoughtful comment you wrote.

There is overwhelmingly evidence that investors everywhere have a tendency to hurt themselves. What is not clear is that a generalist portfolio manager can counter that tendency enough to justify charging for >1% of AUM. By “generalist portfolio manager” I mean managers who help with asset allocation, fund selection and portfolio monitoring. I started with the approach only to find out that clients won’t listening to your advice when it matters the most. I have since adopted a personal CFO approach; I spent considerable amount of time getting to know my small number of clients, build trust, strengthen relationship. I have found my advices are taken much more seriously and I am finally able to add substantial value to my clients’ lives, and not just in investment.

I have also learned, the generalist portfolio manager approach is scalable, one can have thousands of clients, but the personal CFO approach is NOT scalable at all. Getting to know clients and building trust with them are not only time-consuming, but also un-delegate-able. So as a business model, this maybe be ideal for those advisors who bent on getting real big, but it is ideal for advisors who enter the business because they enjoy helping people.

You have certainly creating an interesting topic about access to DFA Funds versus Index funds and ETFs. It is a good discussion on proper use through an advisor or via the DIY route.

Years ago, I was fortunate enough to take some of my DFA classes at the Dimensional HQ when Mark Hebner was in attendance (Hello, Mark). As in the past, his thoughts are always well-received and well thought-out.

Along with the article Mark referenced, numerous other studies have asserted that clients who work with an advisor do seem to be able to capture a larger percentage of the available returns. Could this be due to the fact that the advisor is able to pull the emotional aspect out of the investment piece?

But as Michael so wisely pointed out, not all advisors are made from the same substance. Some offer planning services in conjunction with their investment management. Others do have a more rigid (some may call it “canned”) approach, which may not be a bad thing – it certainly formalizes their a consistent approach to investing and exposure to all asset classes. Isn’t that the goal that most investors are seeking?

A DIY approach can be great, but the idea of cheap may be misleading. Is the investor’s time considered into this equation? Is the investor able to stay on top of the process on their own?

When you invest yourself, be it in DFA Funds, Vanguard, etc. you must have the emotional acumen and personal discipline to follow the process, which, as Michael pointed out is the key element.

If the investor is not capturing the return due to behavior that results from emotion, and the advisor is able to remove the emotion and increase the return, then wouldn’t it be also possible to consider a DIY approach expensive from that vantage point?

Unless I’m missing the point, if it seems logical to the investor that an advisor may potentially increase their return by at least the cost of their fee, save them more than the cost of the fee in behavioral mistakes that could be avoided, and save them time, effort, and worry…then doesn’t that seem cheap?

Cheers,
Matt

PS…In full disclosure – we are also a Fee-Only firm that offers fixed fee, low-cost access to DFA funds.

Michael

Your point is well taken. By the way, it blows my mind that you have 1800 clients. I my wildest dream, I want to help 100 families accomplish that that are important to them. I only have 30 some clients now and I are already quite pressed for time. I am scaling back my vision to 60 wealth management clients so quality won’t suffer.

For experienced investors like Steve, I’d like to make low cost access to DFA funds available to them: http://dfadiy.com. They won’t get the same services as my wealth management clients though.

Michael Zhuang