Dimensional Fund Advisors Review - MagnifyMoney
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Dimensional Fund Advisors Review

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Dimensional Fund Advisors is a registered investment advisor (RIA) based in Austin, Texas, that primarily works with institutional investors. It also licenses mutual funds and exchange-traded funds (ETFs) to independent financial advisors for their clients. The firm has over 360 advisors on staff and offices located on four continents.

The bottom line: Dimensional Fund Advisors specializes in serving institutional investors and partnering with independent financial advisors.

  • Rarely works with individual investors
  • Relies on fundamental analysis instead of picking stocks
  • Offers resources to financial advisors

All information included in this profile is accurate as of October 20, 2021. For more information, please consult Dimensional Fund Advisors’ website.

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Overview of Dimensional Fund Advisors

Dimensional Fund Advisors was founded in 1981 and has grown to establish offices throughout the world, with locations in North America, Asia, Australia and Europe. The firm primarily manages securities and other assets for institutional investors, though it also works with some high net worth individuals and manages separate accounts for independent financial advisors.

Dimensional Fund Advisors is organized as a limited partnership. Its general partner is Dimensional Holdings Inc., which is primarily owned by the firm’s executive chairman, David G. Booth, alongside current and former Dimensional employees and directors. Dimensional Holdings LLC, a subsidiary of Dimensional Holdings Inc., owns approximately 96% of the partnership interest of the firm.

Dimensional Fund Advisors’ pros

  • Unique company with long track record: In working primarily with institutional investors and independent financial advisors, Dimensional Financial Advisors has carved out a niche in the financial services world and developed a strong reputation evidenced by winning industry awards.
  • Systematic approach toward investment management: The firm’s investment mentality is to rely on underlying market fundamentals instead of attempting to time the market or stock pick, which is generally considered a safer way to invest.
  • Clean disciplinary record: Dimensional Fund Advisors reports no disciplinary issues on its most recent Form ADV, meaning that there have been no civil, criminal or regulatory events involving the firm in the preceding 10 years.

Dimensional Fund Advisors’ cons

  • Works with few individual investors: If you’re an individual investor, chances are that Dimensional Fund Advisors will not work with you directly. Instead, the firm generally points individuals toward a financial advisor that partners with the firm.
  • Potential conflicts of interest: Sometimes Dimensional Fund Advisors may recommend its own funds to clients, which can include costs that get passed on to the client. Because those recommendations benefit the firm financially, it could present a conflict of interest.
  • Performance-based fee schedule: Dimensional Fund Advisors has some performance-related incentives for hitting certain portfolio goals. These fees may push advisors toward more aggressive investments in an effort to hit those benchmarks, thus increasing the level of risk.

What types of clients does Dimensional Fund Advisors serve?

  • High net worth individuals
  • Investment companies
  • Pooled investment vehicles
  • Pension and profit-sharing plans
  • Charitable organizations
  • State or municipal government entities
  • Insurance companies
  • Sovereign wealth funds
  • Corporations or other businesses

Individual investors are a small fraction of Dimensional Fund Advisors. Less than 30 individual investors were reported on the firm’s most recent Form ADV, all of whom were high net worth individuals (for reference, the SEC defines a high net worth individual as someone with at least $750,000 under management or a net worth believed to be at least $1.5 million).

Instead, Dimensional caters to institutional investors. Most of the firm’s clients are investment companies and pooled investment vehicles, as well as some government entities, pension and profit-sharing plans, sovereign wealth funds and charitable organizations.

Dimensional Fund Advisors also partners with other financial professionals. Those advisors, some of whom are independent, can work closely with Dimensional to advise their clients.

Services offered by Dimensional Fund Advisors

Dimensional Fund Advisors provides portfolio management services, mostly geared towards institutional investors. Because the firm works directly with fewer clients than most investment firms, it can tailor its strategies to the objectives of each client.

The firm also provides licensing services, including licensing software for employee benefit plans, as well as model portfolios and certain indexes. Dimensional Fund Advisors offers its own proprietary ETFs and mutual funds.

Individual investors can best access Dimensional funds and strategies through its affiliated financial advisors.

Here is a list of services offered by Dimensional Fund Advisors:

  • Investment management
  • Licensing services
  • Financial advisor services
  • Mutual funds and ETFs

How Dimensional Fund Advisors invests your money

Dimensional Fund Advisors’ investment approach is based on a belief in rational market theory, which holds that asset prices reflect all publicly available information related to financial performance, risk, capital structure and corporate governance. The firm consolidates price information to guide its investment strategies.

Like many investment advisors, Dimensional Fund Advisors builds broadly diversified portfolios to maximize returns while minimizing risk. Additionally, Dimensional uses a systematic approach to choosing investments — its analysis tends to focus on eliminating certain securities from a portfolio instead of choosing which securities to add. Instead of trying to pick the right stocks or time the market, Dimensional takes a long-term view of the market and focuses on sources of expected returns.

Dimensional Fund Advisors also often invests using its own funds. There are six asset class categories listed on Dimensional Fund Advisors’ website for its mutual funds:

  • Equity
  • Commodities
  • Fixed income
  • Global allocation
  • Real estate
  • Target date

There are also some additional filters for socially responsible and sustainable investing.

Fees Dimensional Fund Advisors charges for its services

Dimensional Fund Advisors is compensated through a few different kinds of fees for its investment management services. Specifically, the firm may charge fees based on a percentage of assets under management, performance-based fees and fixed fees.

Fees tend to vary based on several criteria. When determining a client’s rate, Dimensional Fund Advisors considers the particular circumstances of the client, specific strategies or restrictions, account size, client location, the scope of the relationship, the level of service provided and the discretionary character of the account, among other factors. Consequently, some clients may pay higher advisory fees than others.

For some qualified clients, which include those with over $1 million in assets under management, Dimensional Fund Advisors may charge performance-based fees, which apply when certain investment goals are met. Though this may create an incentive for the firm to pursue riskier or more speculative investment strategies, it has procedures in place to mitigate these issues.

In addition to the advisory fees charged by Dimensional Fund Advisors, clients also bear the costs and expenses related to investing in Dimensional funds.

Dimensional Fund Advisors’ disciplinary disclosures

Dimensional Fund Advisors has reported no disciplinary disclosures in the last 10 years. The SEC requires registered investment firms to report disciplinary disclosures, which include criminal, regulatory and civil infractions involving the firm, its employees or its affiliates, on its Form ADV paperwork filed with the SEC.

More information on Dimensional Fund Advisors can be found on its Investment Advisor Public Disclosure (IAPD) page.

How to open an account with Dimensional Fund Advisors

  1. Contact Dimensional Fund Advisors: If you want to work with the firm, you can reach out by submitting a form provided on Dimensional’s website or by calling the firm at (512) 306-7400.
  2. Find an advisor that partners with Dimensional Fund Advisors: Individual investors can also connect with financial advisors who use Dimensional Fund Advisors’ mutual funds through Dimensional’s website. Those funds can be used for retirement plans, 529 College Savings Plans and Health Savings Accounts (HSA).
  3. Receive regular updates from the firm: Once you’ve reached an agreement with Dimensional or an independent advisor partnered with the firm, you can expect to receive monthly reports on portfolio performance.

Where Dimensional Fund Advisors is located

Dimensional Fund Advisors has just a few offices in the U.S., in Austin; Santa Monica, Calif.; and Charlotte, N.C. However, it has jurisdiction to do business in all 50 U.S. states as well as the District of Columbia.

The firm also has locations abroad in Amsterdam, Berlin, Hong Kong, London, Melbourne, Singapore, Sydney, Tokyo, Toronto and Vancouver.

Is Dimensional Fund Advisors right for you?

If you’re an individual investor, you probably won’t be able to work with Dimensional Fund Advisors directly. But you may have some options when it comes to working with financial advisors who use Dimensional funds as part of their investment strategies, as this is how the firm provides access to its resources for the significant majority of individual investors.

Dimensional Fund Advisors specializes in serving institutional investors, but independent financial advisors seeking to partner with a larger firm that can provide resources including brokerage funds and performance metrics may also find Dimensional Fund Advisors to be a good fit. MagnifyMoney can help you find a financial advisor who suits your unique investment needs if Dimensional Fund Advisors doesn’t fit the bill.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.