US-based fund manager Dimensional Fund Advisors has turned the table on advisers, forcing them to learn about the investment manager and prove that they share the same values as the firm before ‘accrediting’ them to purchase their products.
Speaking to Professional Planner after addressing a global audience of adviser advocates in the Museum of Contemporary Art in Sydney, co-chief executive and head of financial adviser services David Butler explained the unconventional methods they used to partner up with advisers.
“We give [advisers] our view, and once they’ve come through our conferences and our training we ask them how they would use a Dimensional fund,” Butler said. “If we feel confident that they would use it in a way that would be compatible with other shareholders then we’ll allow them to access the funds.”
Founded in 1981, Dimensional is quantitative-style manager with about AUD$800 billion globally. Butler says Dimensional is now “number seven in terms of assets” in the US and “in the low thirties” globally.
The compatibility Butler speaks to has a lot to do with advocacy; advisers must show the firm that they not only do the right thing by their clients, but that they believe in the product Dimensional is putting forward. This comes after the adviser attends “one or two” Dimensional seminars and has their business model approved.
“We let advisers navigate the story, and at some point in that navigation process they come up with the ‘A-ha moment’ where they say ‘OK, this makes sense, this works for me, my business and my clients’,” Butler said.
The Dimensional process is in stark contrast to other fund managers – especially traditional active managers, who are in a dogfight to prove their worth in the retail space against low-cost ETF providers.
“When I started 25 years ago people were shocked that we wouldn’t just sell,” Butler recalled. “Sales was considered to be when you went in and tried to convince someone to buy something, and if they bought it that was a win.”
Dimensional took a different approach, Butler explained.
“Our view was that we didn’t want to be in the sales business, we wanted to be in the education and training business. And we wanted to build advocacy.”
According to Butler, building “advocacy and passion” is central to the Dimensional method.
“Advisers will advocate for the client, but they’re also going to understand the capital markets to an extent that perhaps someone that didn’t come through the process would,” Butler said.
As to the vetting process Dimensional puts advisers through, Butler prefers to call it a “slow sale”.
“The vetting process sort of just lines up with the questions like compatibility of assets, protecting shareholders, development of advocacy and the relationship with the adviser,” he said. “We tell advisers ‘look, we’ll tell you our story but it’s up to you to ‘kick the tires’ on us and make sure it’s the right answer for your clients.’”