Both value and small-cap stocks have underperformed a large-cap index by at least 60 percentage points since 2010, Russell indexes show. DFA’s $26 billion International Core Equity Portfolio is set for a third year trailing its benchmark.

It’s not alone. Quant competitors including AQR Capital Management LLC -- another ETF holdout that applied to launch its own but never did -- have suffered similarly. But while many of their peers have moved to revamp traditional factors and find new sources of returns, the likes of DFA and AQR remain steadfast in their traditional beliefs.

The Texan firm has total commitment to the science it drills into advisors, and preaches the virtues of success over the long haul rather than chasing every market trend. Even a small tweak to DFA models can be years in the making.

Advisor demand and a recent rule change are behind the decision to offer ETFs, according to Dave Butler, DFA’s co-chief executive officer. He says the quant giant has no intention to make any wholesale adjustments to its business model.

“ETFs are accessible at the retail level but we have no interest whatsoever in working with retail clients,” Butler says. “We’re an asset manager, that’s all we do. We don’t do advice.”

Friendly Competition
DFA’s deliberative approach meant the pivot toward ETFs was a slow process.

As advisor demand began to grow, the firm seem determined not to rush into creating its own. Instead, in 2015 it agreed to sub-advise on ETFs from John Hancock Investment Management.

“If they launched ETFs anybody could have access to DFA funds, and they didn’t want that,” says Ferri. “You don’t bite the hand that feeds you.”

Under the long-standing model, advisors got a relatively cheap and comprehensive line-up of funds and the prestige that came with access, and DFA got a loyal army taught to sell their story.

Crucially, the firm sought advisors that wouldn’t trade in and out of its funds too often -- behavior that might have eroded the effectiveness of its factors.

ETFs, with their easy access and low costs, threaten to encourage exactly that kind of trading. But the clamor from advisors grew too loud to ignore.

Kitces at Buckingham Wealth says pressure on fees means advisors are increasingly avoiding active managers and handling portfolios themselves -- which is easier to do with ETFs.