DFA reaches out to small RIAs as it's set to enter the TAMP business by including 1,500 third-party funds starting July 7

Dimensional Fund Advisors (DFA) has long been the meat in the TAMP sandwich, but now it's ready to be Subway – the better to address smaller RIAs and to compete with turnkey asset managers. 

Its two new TAMP layers can add a whopping 39 basis points to DFA revenues for the assets that tuck into outsourced portfolios.

FundFire, a private newsletter that tracks US institutional asset management, first reported the news on June 20.

DFA has been edging toward a TAMP offering since Feb. 2023, the article states, when it first allowed advisors to hold exchange-traded funds alongside individual securities inside separately managed accounts. 

The Austin, Texas, factor-investing giant is swallowing a bitter pill to make its TAMP competitive.

It's allowing 1,500 third party funds to be distributed through the UMA or unified managed account that forms the basis for the TAMP. 

Investment minimums for the strategies will remain the same at $500,000, including the new third-party ETFs, a spokesperson told FundFire.

The fee can pay for itself by realizing a gain by generating a loss in rebalancing, the spokesperson said. 

DFA declined to respond to a query sent to its pressroom email box.

Squeezing fees

DFA, which manages about $719 billion, has been the rare fund firm with an almost cult following of RIAs willing to manage client portfolios almost exclusively from DFA inventory – albeit ETFs and new entrants in the “factor fund” universe are cutting into its market.  

It has also had big TAMPs – like Loring Ward, Buckingham Asset Management and Matson Money – that happily used DFA funds as their mainstay fund manager.

As loyal as its end investors might be, RIA custodians have squeezed the firm for years by adding fees. See: DFA RIAs remain in turmoil as Schwab and Fidelity ponder matching TD Ameritrade pricing deal and a key couple of basis points

The upgrade to its platform, now referred to as the UMA Center, will allow advisors to invest ETFs in the same portfolio as SMA strategies made up of both ETFs and individual securities, then managed for tax optimization as a unit, said Kaitlin Hendrix, a Dimensional asset allocation research director and vice president in the article.

The upgrade is slated to take effect on July 7. 

Restoring basis points

In February a year ago, Dimensional created the ability for its advisors to hold exchange-traded funds (ETFs) alongside individual securities within its digital SMA Center. 

Currently, Dimensional has nine individual security SMA strategies and 38 proprietary ETFs.

At the moment, 200 RIA firms use the service for 900 accounts, paying between 18 and 29 basis points, 

For years, DFA has been reducing fees.  See: Vanguard and DFA turn Dec. 17 into Black Friday sale by slashing fees on a combined 67 funds -- including notable cut in ESG ETF to nine basis points

DFA's “SMA Center” currently manages $2.6 billion.

Between 2018 and 2022, DFA's AUM was effectively flat at around $575 billion, while the S&P 500 advanced by about 46% over the same time. 

Competitive challenge

 Eduardo Repetto, a former co-CEO of DFA, has emerged as one of the rising DFA competitors through Avantis Investors, a Los Angeles investment company backed by American Century Investments. 

“Avantis has no intention of being a TAMP,” he explained when asked by RIABiz in a telephone interview.

 “We want to focus on what we do best. If you try to do everything … at some point, somebody might be better than you.”

DFA told WealthManagement.com that operating on multiple levels is right in its wheelhouse.

“Dimensional has over 20 years of expertise in managing funds-of-funds and sophisticated tax management accounts.

"It can be quite complex,” Hendrix told the publication. 

“Technology is part of it, but also, we have the expertise to use the technology to deliver investor outcomes.”