How to Buy DFA Funds Without an Advisor
DFA funds are mutual funds that aim to capture the higher returns of small cap and value stocks. They are based on the academic research of Dimensional Fund Advisors, a company founded by Nobel laureate Eugene Fama and his colleague Kenneth French. DFA funds are said to be better than traditional index funds because they use a more sophisticated approach to select and weight stocks according to their size, value, profitability, and other factors.
However, there is a catch: you can’t buy DFA funds directly from the company or from any online broker. You have to go through a DFA-approved financial advisor, who will charge you a fee for their services. This fee can range from 0.25% to 1% or more of your assets per year, depending on the advisor and the amount you invest. For some investors, this fee may be worth it if they value the advice and guidance of a professional. But for others, who prefer to do their own research and manage their own portfolio, this fee may seem like an unnecessary cost.
Fortunately, there are some ways to buy DFA funds without an advisor, or at least with a lower fee. Here are some options:
- 529 plans: Some 529 plans, which are tax-advantaged accounts for saving for college, offer DFA funds as investment options. For example, the West Virginia Smart529 Select Plan and the Utah 529 Plan both have DFA funds in their portfolios. You don’t have to be a resident of these states to use their plans, and you can use the money for any qualified education expenses at any eligible institution in the country. The downside is that you can only invest in the pre-made portfolios offered by the plans, not in individual DFA funds. Also, you will pay an extra fee of about 0.3% to 0.5% on top of the fund expense ratios.
- ETFs: In 2020, DFA announced that it would convert some of its mutual funds into exchange-traded funds (ETFs), which are similar to mutual funds but trade on stock exchanges like stocks. ETFs are generally more tax-efficient and cheaper than mutual funds, and they can be bought and sold by anyone with a brokerage account. As of 2021, DFA has converted six of its mutual funds into ETFs: Dimensional US Core Equity Market ETF (DFAU), Dimensional US Targeted Value ETF (DFAT), Dimensional International Core Equity Market ETF (DFAI), Dimensional International Value ETF (DFIV), Dimensional Emerging Markets Core Equity Market ETF (DFAE), and Dimensional Emerging Markets Value ETF (DFEV). More conversions are expected in the future. The upside is that you can buy these ETFs without an advisor and with lower fees than the mutual funds. The downside is that you may incur trading costs and bid-ask spreads when buying and selling ETFs.
- Robo-advisors: Some robo-advisors, which are online platforms that provide automated investment management services, use DFA funds in their portfolios. For example, Betterment and Wealthfront both offer DFA funds as part of their socially responsible investing (SRI) options. Robo-advisors charge a lower fee than human advisors, typically around 0.25% of your assets per year. The upside is that you can get access to DFA funds with minimal effort and cost. The downside is that you have less control over your portfolio allocation and customization.
In summary, if you want to buy DFA funds without an advisor, you have some choices available. You can use a 529 plan, an ETF, or a robo-advisor to get exposure to DFA’s investment philosophy and strategies. However, each option has its pros and cons, and you should weigh them carefully before making a decision.