Dfa Case Study

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9-203-026 REV: JANUARY 28, 2003 RANDOLPH B. COHEN Dimensional Fund Advisors, 2002 In June of 2002, David Booth faced a dilemma. His firm, Dimensional Fund Advisors (DFA), had in recent times shown stellar performance after going through some relatively rough patches in the late 1990s. Growth was steady and profits strong. Yet, Pensions and Investments ranked DFA a mere th 96 in size among investment companies (see Exhibit 1). While DFA had never viewed maximizing assets under management as a goal, the ranking did suggest that it might be possible for DFA to achieve more as a firm than it currently was. Should Booth and DFA continue on the path that had brought them this far? Or was this the time for a major initiative that could…show more content…
The total amount invested in DFA by institutions was about $25 billion. Such clients numbered over 125 and included corporate, government, and union pension funds, college endowments, and charities. Nearly all of DFA’s institutional clients were tax exempt, either because of their not-for-profit status or because of the tax exemptions granted to retirement plans. In 1989, DFA decided to pursue high-net-worth individuals, in addition to institutions, as clients. Because of the illiquid nature of many DFA holdings, it decided that direct accounts with individual investors would likely lead to intolerably high costs. Instead, DFA offered investment services to individuals through a limited number of investment and accounting firms that acted as intermediaries known as registered investment advisors (RIAs). The RIAs chosen shared DFA’s core beliefs, especially the importance of diversification, low turnover, and low transaction costs. The advisors received no payment directly from DFA, but DFA’s low fees enabled them to charge a moderate advising fee to the client while still keeping total charges reasonable. These arrangements benefited both DFA and the advisors. DFA provided the RIAs with a low-fee product that the clients would not be able to obtain on their own. In addition, DFA educated its RIAs by providing them with access to top researchers who were developing innovative theories and empirical analyses. The RIAs

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