What You Need to Know
- “The advisor business is our business,” and the firm added ETFs to meet advisor demand, not to lure retail investors, Dave Butler tells ThinkAdvisor.
- The SEC's new ETF rule was key to the firm making that happen, Butler said.
- DFA has been experiencing big outflows, but ETFs and other initiatives may help to limit or reverse that.
Dimensional Fund Advisors, a favorite of many financial advisors, is changing its lineup of investment options, but according to co-CEO Dave Butler, the 40-year-old firm is not abandoning its one and only focus on financial professionals.
“The advisor business is our business,” Butler told ThinkAdvisor. “We don’t do retail business. We’re not built for that.”
In a wide-ranging interview, Butler explained that the firm’s addition of ETFs to its long-running mutual fund lineup, which are available to all investors, was driven by requests from advisors, not by a desire to expand the firm’s customer base.
“What we’ve done with ETFs is that we’ve actually offered up more flexibility frankly to advisors who were looking for ETFs alongside mutual funds in their practices,” said Butler.
Retail investors who don’t use advisors can purchase DFA ETFs, but if they visit the firm’s website to find an ETF they will be directed to the “Find an Advisor” tab, to direct them back to an advisor, Butler said.
DFA, which is one of the last of the major asset managers to add ETFs, launched three active ETFs last fall, converted four mutual funds to ETFs in June and expects to add two more conversions in September. Its U.S. Core Equity ETF (DFAU), introduced in November, has amassed $1 billion in assets since then.
“People will sometimes ask, ‘What does this mean for Dimensional? Have you changed your strategy in terms of working with advisors?’ and the answer is absolutely not,” said Butler. Adding ETFs “was not an attempt for us to go into the direct individual investor space,” he added.
While advisors’ requests drove DFA to add ETFs, the SEC’s new ETF rule was key to making that happen. The rule provides greater flexibility for the construction of in-kind baskets of securities and assets that ETFs use to purchase and redeem large aggregations of shares (creation units). “Once that ruling and ability to do custom baskets came around in September 2019 that’s when we said yes, we’re going to move forward and provide these advisors something we think they want for their practices,” Butler said.
Betterment Offerings, Managed Accounts
ETFs are not the only recent initiative DFA is using to serve advisors who, according to Butler, want more customization and low-cost diversification in investment products for their clients.
DFA recently joined Betterment for Advisors, becoming the first asset manager to offer mutual funds on the platform.
“A number of advisors using Betterment for their smaller client solutions asked us to be on there so they could mimic their offerings to smaller clients the offerings they had for larger clients,” Butler said.