When Rick Ferri wanted to invest his clients’ money with Dimensional Fund Advisors, it wasn’t as simple as cutting a check. First he had to get through boot camp.

The pioneering quant firm’s strategies were off-limits to all but approved investment advisors, and an intensive two-day training course was its vetting process. So in 1999 Ferri booked a slot, packed a bag and hopped on a plane.

In Santa Monica, California, he was immersed in the DFA philosophy. Alongside fellow attendees he was schooled in the theory underpinning its approach, taught the science behind its main strategies and wowed by a charismatic team that included Ken French -- a legend of the investing world.

“You had to drink the Kool Aid,” Ferri recalls. “They never treated you as a low-life broker type. They treated you as an equal, that you’re capable of understanding.”

Advisors like Ferri who made the cut typically went on to sell DFA products for years. Over decades, their loyalty and training helped grow the Austin, Texas-based firm founded by David Booth into a juggernaut managing $500 billion.

Now, the era of exclusivity is ending. In late June, DFA filed to launch its own exchange-traded funds -- meaning for the first time ever its strategies will be available to anyone with a brokerage account.

“That’s a really big deal,” says Michael Kitces, head of planning strategy at Buckingham Wealth Partners, a long-time seller of DFA funds. “DFA is one of the biggest success stories of being exclusively advisor-sold.”

It was also among major asset managers holding out against ETFs -- a group that’s dwindling fast.

Woe Is Quant
“Everything that made DFA this big cult in the early to mid-2000s turned against them,” reckons Ferri, founder of Ferri Investment Solutions.

When he attended the DFA boot camp, the company was at the cutting edge. Technology and academia were converging to accelerate quantitative trading, and factor investing was one of its major disciplines.

While French was a professor at the University of Chicago alongside fellow DFA director Eugene Fama, they showed that characteristics including small size and low valuation explained equity outperformance. Investors could beat the market by picking stocks based on these “factors,” and that’s what DFA did.

In the years following the dot-com bubble it worked beautifully, but there was a shift over the past decade. Powered by an index-tracking boom, the U.S. ETF market swelled to $4.6 trillion -- growing twice as fast as the mutual fund industry -- just as the strategies DFA pioneered misfired.

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