Betterment planners get access to DFA’s mutual funds

Betterment is teaming up with a Dimensional Fund Advisors to offer new mutual funds to its advisory network, building out a platform that now serves 450-plus registered investment advisors.

Dimensional, which manages $569 billion in client assets, offers equity and fixed-income mutual funds on the Betterment for Advisors network. The firm does not break down assets under management on its advisor platform, but says it is currently managing $16 billion in assets among its retail and business-to-business segments.

“We are very well aligned in terms of views and not worrying about things you can’t control,” says Jon Stein, Betterment’s CEO. “We worry about investor behavior, taxes and trading costs.”

Founded 37 years ago, Dimensional uses academically-derived factor models and touts an eye-catching performance record: More than three-fourths of Dimensional funds have outperformed the markets between 2003 and 2017, according to its website. While equity mutual funds reported $535 billion in outflows from 2008 to 2012, Dimensional products saw inflows of $34 billion during the same period.

Although Dimensional specializes in mutual funds, Stein says the portfolios still act like passive investment vehicles and align with Betterment’s mantra of reducing management fees. “The whole world is basically passive right now,” he says, adding that the firms have been in talks about working together for almost a decade. Dimensional has “a number of different offerings in different asset classes that adhere to the same philosophy. It’s called passive, but managed in a tax-efficient way.”

In addition to the Dimensional offering, Betterment’s advisors have access to five other portfolios, including SRI Portfolio, BlackRock Target Income Portfolio, Goldman Sachs' Smart Beta Portfolio, Vanguard model portfolios and the Betterment’s Flexible Portfolio.

Amid major volatility in December, Betterment added broad-based commodities to its Flexible Portfolios offering, which a firm spokeswoman says are viewed as safe investments in an underperforming market. Advisors have direct control over asset class weights within the Betterment core portfolio. The platform also provides exposure to international and domestic REITs, high-yield corporate bonds, a Goldman Sachs smart beta option and Vanguard ETFs.

While industry observers wonder how robo advisors may fare during a sustained market downturn, Stein believes the right approach to investing remains paramount. “There are lots of different philosophies on what will beat the markets,” Stein says.

For his firm, a focus on tax-loss harvesting and offsetting losses will take precedence. The priority is also to educate investors and to remind clients of the advantages of buying equities while prices are low. “The markets are efficient,” Stein says. “What we can control is behavior and staying the course. Diversification and taxes.”