Betterment, the largest independent digital advisor, will be adding funds from Dimensional Fund Advisors (DFA) to its Betterment for Advisors platform beginning sometime in the third quarter.
These will be the first mutual funds offered on the Betterment platform, which currently includes only ETFs, and they will be available only to advisors with DFA approval, which involves an education process to understand the firm’s philosophy and the ability to articulate it to clients, according to Betterment CEO Jon Stein. DFA funds are available only through advisors.
“I’ve been a fan of DFA for over a decade,” Stein tells ThinkAdvisor.
DFA bases its portfolios on the belief that market prices reflect all available information and a diversified portfolio with fundamental tilts, such as size and value, coupled with tax efficiency and turnover can outperform traditional market-cap indexes. The firm is considered by many to be the first smart beta portfolio manager before smart beta became a term.
Advisors will be able to invest client assets in DFA funds on the Betterment for Advisors platform at no additional cost and no per-transaction trading fee above the usual 25 basis-point fee for the first $2 million in client assets (and 15 bps above that level).
They will also be able to customize portfolios with DFA funds, adding their own preferences, said Stein, noting that between now and the third-quarter debut of DFA funds, Betterment will be working with advisors to design model portfolios using those funds.
The addition of DFA funds is the latest enhancement to the Betterment for Advisors platform. Last March it launched the Flexible Portfolio, which lets advisors adjust the asset weights of the funds offered in the Betterment Core Portfolio. At that time it added REIT and high-yield bond ETFs to that portfolio, and in December it added commodities. Previously, Betterment for Advisors had added SRI, BlackRock Target Income, Goldman Sachs Smart Beta and Vanguard model portfolios to the platform.
“This deal has the potential to be additive for both DFA and Betterment,” said David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report. “DFA will be gaining exposure to existing independent advisors that use Betterment, and Betterment will be gaining exposure to those advisors that use DFA funds.”
Goldstone added that Betterment’s preparation to add the DFA funds involves “significant development work” on its platform to support mutual funds, in addition to ETFs. “This improvement strengthens their platform beyond just the DFA partnership.”
To date, 500 firms with 3,000 advisors have signed up for Betterment for Advisors, and the firm has total AUM, including retail assets, of $16.9 billion. DFA has $576 billion in assets under management.
— Related on ThinkAdvisor:
- Betterment for Advisors Adds Flexibility, More ETFs to Core Portfolio
- Betterment for Advisors Integrates With Redtail, Wealthbox: Portfolio Products