At DFA, ETFs Signal End of Exclusivity

What You Need to Know

DFA mutual funds are offered only through advisors, but its ETFs provide many of the same investments.
Exclcusivity is not the reason for DFA’s success, Dave Nadig says.
The firm says it’s still focused on advisors and is not marketing its ETFs to the public.

Dimensional Fund Advisors, which offers its mutual funds exclusively through approved financial advisors, has opened access to largely the same investments through its recently expanded exchange-traded fund lineup, experts noted recently.

“DFA ‘gatekeeping’ is over. Advisors who sell on access to DFA will need a new spiel. 99% of DFA’s useful lineup will be unrestricted in ETF wrapper,” Rubin Miller, advisor and founder at Peltoma Capital Partners,  posted on X in September as Dimensional prepared to launch two new ETFs.

“I can’t wait. I love the funds and I love democratized access for all investors,” Miller, a former DFA regional director and current client, added. “No more barriers to entry,” he said in another post congratulating DFA on its new global stock ETF.

By launching its World Equity ETF and Ultrashort Bond ETF last month, Dimensional, which introduced its first ETFs in 2020, now offers investors access through an ETF “wrapper” to virtually the same assets packaged in its mutual funds, Miller said.

Dimensional in late September announced it was adding seven new ETFs, including the newly listed Ultrashort Fixed Income ETF (NYSE Arca: DUSB) and World Equity ETF (NYSE Arca: DFAW). The company expects to end this year with 38 ETFs and to roll out others in the future.

The two recently added funds had been “glaringly missing” from Dimensional’s ETF offerings, Miller told ThinkAdvisor in a recent interview.

A ‘Simple, Elegant Portfolio’

“The evolving value proposition of advisors is fantastic for investors, and selling ‘access to DFA’ is done. You still want an advisor/financial planner with immense investment expertise, you just want that expertise to be manifested via a simple, elegant portfolio of well-engineered, low cost funds,” Miller posted.

The new World Equity ETF gives investors exposure to the entire global stock market and could constitute a client’s entire stock portfolio, he noted in the interview. Many advisors, wirehouses and brokerages place 100 or more funds in client portfolios, which doesn’t add value, is confusing and “makes people feel dumb,” Miller said. 

“I’m a big believer that not everyone needs an advisor,” Miller said, adding he’s glad to see there’s a solution for them. ”It’s a great example of the democratization of finance.”

DFA’s Real Secret Sauce

Dave Nadig, ETF expert and financial futurist at Vetta Fi, agreed with the idea that investors no longer have to use advisors to access Dimensional investments because they can buy effectively the same assets available in mutual funds through ETFs.

“For a long time, Dimensional’s hook to advisors was exclusivity, and advisors diligently went to Texas to get trained on the Dimensional way. As the ETF lineup continues to expand, it becomes harder and harder to argue there’s any exclusivity left,” although there’s some, as not every Dimensional strategy is in an ETF, Nadig told ThinkAdvisor by email.

“But it’s worth pointing out that the real reason for Dimensional’s success has always been substance, not style. They’ve delivered on their core promise of smarter, low-cost pseudo-passive investing, which remains a pretty unique niche,” one also occupied by Avantis, which was founded by Dimensional’s former co-CEO and chief investment officer, Nadig said.