In the following interview, conducted at the Tiburon CEO Summit in New York City in April, Loring Ward CEO Alex Potts and DFA co-CEO David Booth talk about the relationship between their firms, the markets and the economy, and the future of the advisory profession.

Swift: Where does the Loring Ward/Dimensional story begin?

Booth: Loring Ward was one of the first firms we worked with starting in 1989-1990. Our relationship is just as strong, if not stronger, than it was back then. It’s really changed in line with the way the industry has changed. In those days, financial advisors would get paid for picking 10 to 12 mutual funds for clients. Now advisors are working closely with clients to figure out a better investment strategy for their clients.  Many also provide wealth management and additional services. 

Potts: When we first started, our predecessor company, RWB Advisory (now Loring Ward), had $3 million under management, 10 portfolios, and Dimensional for three funds, Vanguard, Lexington Gold and Janus Venture for the other funds.

Then Iraq invaded Kuwait in August of 1990, and the Janus manager took a 20 percent cash position. This affected every single one of our portfolios, upending the asset allocations and risk/return parameters we’d so carefully engineered. That was the “aha” moment for us that fundamentally changed the way we saw the world. And of course the manager missed the market completely. After that, we never wanted to have our portfolios held hostage to the idiosyncratic decisions of portfolio managers. That is when we moved all of our assets to Dimensional’s asset class funds.

Booth: You have hit on something that I’ve only fully grasped in the last couple of years. Largely, the way we manage money today is the way we did it then. First off, you know we are not going to do anything crazy and unexpected, and second is the benefit of what happens when you have disappointing results. Every manager has a period of time when his results are disappointing, but what’s interesting is what happens with advisors and their clients up and down the line. The good thing about us is you know why our results are what they are. If you are working with a typical fund manager that made a shift from one kind of stock to another kind of stock—with disappointing results—you don’t know what they did and why, which is really frustrating. So, having Dimensional be objective and transparent is a real benefit. Transparency builds trust; it doesn’t feel like the rug has been pulled from under you.

Potts:  We are trying to help an advisor help their clients get from point A to point B for the least amount of risk. If we can help them do that without disruption and surprises from money managers, we can engineer a portfolio that makes it easier for the advisor and for the client. The advisor is not wasting time apologizing for the underperformance of a manager—that is a useless conversation. There are so many more important things to discuss.

Booth: When you started working with Dimensional, we only had the U.S. and International small-cap funds and the one-year, fixed-income portfolio, so you had to use those other funds because, even if you wanted to use more, we didn’t have them. So, basically, we’ve kind of grown up together. At the end of 1990, Dimensional had about $4 billion under management. Today, we are a little over $350 billion.

Potts: I think it would have been hard to predict the success both firms have achieved over the years. It was a brand new industry, so nobody could predict how big it was going to get.

Post-Recession Lessons

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