The Future of Investing
The future of investing presents both an opportunity and a challenge to financial professionals who must introduce the value of advice to a new generation of investors. A recent article in the Wall Street Journal proposed that younger affluent investors are eschewing traditional financial advice in favor of a self-directed approach.1 Many are opting for digital platforms that offer convenient access to trading and an expanding range of alternative investments, from cryptocurrency to business startups. Making sense of the vast landscape of options is crucial to pursuing a good investment outcome.
In a future of expanding product choices and rising complexity, we believe that qualified, trusted financial guidance will prove more valuable than ever before. But how will wealth advisors reinforce and enhance their value proposition to investors? Let’s consider the challenge within an industry driven by product innovations.
New Investment Structures
Exchange-Traded Funds
Around the world, mutual funds still capture the lion’s share of global investor assets. But the use of other vehicles has been rising. These include exchange-traded funds (ETFs), which were introduced in the US in 1993. Most ETFs in the US have tracked indices and been considered “passive” strategies, but US regulatory changes have enabled an expansion of active transparent approaches that seek to outperform market benchmarks. Specifically, the US Securities and Exchange Commission’s 2019 adoption of one new ETF rule provided US managers with greater flexibility in choosing securities for share creations and redemptions—a feature that can reduce costs and help position portfolios for higher expected returns, which benefits Dimensional’s investment approach.
The new ETF rule in the US has opened the door for industry growth and advisors embracing this investment structure as they look to offer more ways to meet the growing needs and preferences of their clients.
Fund Focus
While mutual funds hold more assets, ETFs have been experiencing faster growth. In US mutual funds, active strategies dominate, while US ETFs comprise mostly passive approaches.
Separately Managed Accounts
Today, technology has dramatically enhanced the ability of asset managers like Dimensional to deliver low-cost solutions tailored to an investor’s objectives. For the next generation of advisors, providing highly personalized investment choices and services is no longer an option. It is a necessity.
Separately managed accounts (SMAs) are an example of technology-driven personalization—made all the more compelling lately with lower minimum account-balance requirements. Advances in financial technology have pushed the costs of investing down, and SMAs are now available to a broader group of investors wanting to customize their portfolio mix to implement specialized tax management, company or industry exclusions, and environmental, social, and governance (ESG) preferences. Dimensional’s SMA offering in the US meets the increasing demand of investor customization, streamlines account management for financial professionals through a world-class digital platform, and applies our value-added approach to pursuing higher expected returns. Through customization, advisors are helping their clients take a more holistic view of wealth that aligns with their values and connects with the needs of clients’ families.
Investment Models
Technology has also fueled the rising popularity of investment models, which provide periodically revised asset allocations in portfolios. Responding to feedback from the advisor community, Dimensional introduced multiple sets of wealth models in the US and UK, built upon our equity and fixed income strategies in 2020. US-based ETF models were added in 2021.
Dimensional has continued to innovate in this evolving industry. We have recently developed strategies in different product structures to give financial professionals more choices in how they integrate Dimensional Investing into client portfolios.
An Advisor for Life
Product innovations and financial technology can offer more targeted choices for investors and tools for delivering financial advice. But industry competition can also lead to the development of fashionable products that may not reflect sound financial science or stand the test of practical implementation in dynamic, unpredictable markets. All these options mean that top-quality advisors will continue to play a vital role in helping clients manage complex choices and thoughtfully match strategies with objectives and values.
Matching Structure and Strategy
This diagram plots popular investment options based on common investor considerations, although an investment may vary within the range of each characteristic. Financial professionals can help navigate the complexity when choosing the right structure to complement an investor’s wealth goals.
Pursuing deeper client relationships through discussions on tax efficiency, charitable giving, retirement, generational planning, ESG integration, and estate planning enables advisors to understand each client’s financial situation. Technology is already changing how advisors connect with clients, allowing for longer, more frequent, and deeper conversations in a virtual setting than may have been possible when meetings only took place in person and often just once a year.
History shows that every generation of investors must navigate a changing financial landscape while keeping focused on their goals. This generation, in particular, must deal with the hyperactive flow of information that can lure investors into making hasty investment shifts. In our view, one of a financial professional’s most important roles is to teach clients to develop a long-term view of markets. If investors are going to participate in the rewards of the capital markets, advisors should encourage them to stay in their seat, through good times and bad.
Combining technical knowledge with more personalized guidance can help financial professionals continue to work with the current generation and reinforce their value to a younger generation of do-it-yourself investors.
Going Beyond Indexing: Dimensional’s Systematic Approach
One common thread in Dimensional’s history is the consistent, systematic application of financial theory and empirical research in managing strategies. Our flexible approach goes beyond indexing to pursue better outcomes than available from tracking benchmarks. We do this by focusing on some fundamental goals.
The Long Investment Journey
More than 30 years ago, we started working with a small but growing group of financial professionals who were inspired to deliver client-centered advice and were seeking low-cost, transparent investment strategies rooted in financial science. Ever since, we have worked together to change how investment advice is delivered around the world.
The professionals we work with believe in the power of capital markets, have a strong client commitment, and possess experience in a range of financial disciplines. Dimensional offers investment expertise informed by empirical research and a deep level of insight and support for their business offerings. We are committed to earning their trust by applying a consistent, transparent approach in our value-added strategies and respecting the bond between advisors and their clients.
In a competitive financial services market, the best advisors look to add value in all aspects of their client relationships. They can’t afford to offer common solutions or untested strategies built upon spurious theories and research. This is where Dimensional’s financial-science-based investment approach and longstanding track record shine.
But helping a diverse advisor community goes well beyond investments—and by working globally with advisors from different financial disciplines and business models, we have accumulated insights that can help drive their organizations to new levels of success. Through Dimensional 360,™ our integrated support program, we continue to develop education, services, and tools that can help financial professionals elevate their client experience while strategically managing and growing their businesses.
The future of investing holds promise for investors and the industry alike. Individuals will continue to get a more personalized investment experience, while financial professionals will continue to deliver investment solutions and services that differentiate their businesses in a dynamic industry.
Advisors have always been at the core of client success—and Dimensional is well-positioned to continue empowering advisors and their investors on that journey.
Dimensional 360™
Comprehensive Solutions for Financial Professionals
Over the past three decades, we have developed an extensive suite of tools and support to help financial professionals deliver a better client experience while managing complex challenges in their business. We call it Dimensional 360.
This expanding collection of knowledge and resources spans multiple aspects of business to help professionals get the most from Dimensional investment strategies, enhance their client communication with effective techniques, and grow their business using strategic insights from our global practice management initiatives.
Dimensional 360 is adaptable to the specific needs of each financial services organization. Through personal consultations, thematic conferences, communication and business strategy workshops, webcasts, digital and print content, and other resources, we strive to help advisors gain a strategic view of where their businesses can go—and provide the expertise and resources to bring their visions to life.
Footnotes
-
1“Rich Millennials to Financial Advisors: Thanks for the Golf Invite, but You Can’t Invest My Money,” Wall Street Journal, Nov. 8, 2021
Disclosures
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.
CANADA
First published May 2022. The Dimensional Matrix Book 2022 was prepared by Dimensional Fund Advisors LP (“Dimensional Fund Advisors”) and is distributed in Canada by Dimensional Fund Advisors Canada ULC (“Dimensional Canada”), the manager of the Dimensional Canada funds and a wholly owned subsidiary of Dimensional Fund Advisors. Dimensional Fund Advisors is an investment advisor registered with the United States Securities and Exchange Commission, an exempt non-resident investment fund manager in Canada, and is the subadvisor to the Dimensional Canada funds.
These materials have been prepared by Dimensional Fund Advisors Canada ULC. The other Dimensional entities referenced herein are not registered resident investment fund managers or portfolio managers in Canada.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
AUSTRALIA
This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and the target market determination (TMD) that have been made for each financial product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
NEW ZEALAND
This material is issued by DFA Australia Limited (incorporated in Australia, AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. This material does not give any recommendation or opinion to acquire any financial product or any financial advice product, and is not financial advice to you or any other person. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and for the Dimensional Wholesale Trusts the target market determination (TMD) that have been made for each financial product or financial advice product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
IF YOU ARE A RETAIL INVESTOR, THIS DOCUMENT HAS BEEN PROVIDED TO YOU BY YOUR FINANCIAL ADVISER, WHO CAN HELP EXPLAIN ITS CONTENTS.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED
Issued by Dimensional Ireland Limited (Dimensional Ireland), with registered office 3 Dublin Landings, North Wall Quay, Dublin 1, Ireland. Dimensional Ireland is regulated by the Central Bank of Ireland (Registration No. C185067).
Dimensional Ireland does not give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial adviser helps you with that decision.
Dimensional Ireland issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from Dimensional Ireland will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
WHERE ISSUED BY DIMENSIONAL FUND ADVISORS LTD.
Issued by Dimensional Fund Advisors Ltd. (Dimensional UK), 20 Triton Street, Regent’s Place, London, NW1 3BF. Dimensional UK is authorised and regulated by the Financial Conduct Authority (FCA) - Firm Reference No. 150100.
Dimensional UK issues information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from Dimensional UK will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
Dimensional UK does not give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial adviser helps you with that decision.
NOTICE TO INVESTORS IN SWITZERLAND: This is advertising material.
SINGAPORE
This document is deemed to be issued by Dimensional Fund Advisors Pte. Ltd., which is regulated by the Monetary Authority of Singapore and holds a capital markets services license for fund management. This advertisement has not been reviewed by the Monetary Authority of Singapore. If you are a retail investor, this document has been presented to you by your financial advisor, who can help explain its contents. This information should not be considered investment advice or an offer of any security for sale. All information is given in good faith without any warranty and is not intended to provide professional, investment, or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Before acting on any information in this document, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. Dimensional Fund Advisors Pte. Ltd. does not accept any responsibility and cannot be held liable for any person's use of or reliance on the information and opinions contained herein. Neither Dimensional Fund Advisors Pte. Ltd. nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors.
FOR LICENSED FINANCIAL ADVISORS AND INSTITUTIONAL INVESTORS IN HONG KONG
This material is deemed to be issued by Dimensional Hong Kong Limited (CE No. BJE760) (“Dimensional Hong Kong”), which is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
This material should only be provided to “professional investors” (as defined in the Securities and Futures Ordinance [Chapter 571 of the Laws of Hong Kong] and its subsidiary legislation) and is not for use with the public. This material is not intended to constitute and does not constitute marketing of the services of Dimensional Hong Kong or its affiliates to the public of Hong Kong. When provided to prospective investors, this material forms part of, and must be provided together with, applicable fund offering materials. This material must not be provided to prospective investors on a standalone basis. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice.
Neither Dimensional Hong Kong nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors. Financial advisors in Hong Kong shall not actively market the services of Dimensional Hong Kong or its affiliates to the Hong Kong public.
Financial advisors may review this document with prospective investors provided that such investors are “professional investors” (as defined in the Securities and Futures Ordinance [Chapter 571 of the Laws of Hong Kong] and its subsidiary legislation). This document is not directed to any person in any jurisdiction where (by reason of that person's nationality, residence, or otherwise) the publication or availability of this document are prohibited or which would subject Dimensional Hong Kong (including its affiliates) or any of Dimensional Hong Kong's products or services to any registration, licensing, or other such legal requirements within such jurisdiction or country. When provided to prospective investors, this document forms part of, and must be provided together with, applicable fund offering materials. This document must not be provided to prospective investors on a standalone basis. Before acting on any information in this document, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice.
Unauthorized copying, reproducing, duplicating, or transmitting of this material are prohibited. This document and the distribution of this document are not intended to constitute and do not constitute an offer or an invitation to offer to the Hong Kong public to acquire, dispose of, subscribe for, or underwrite any securities, structured products, or related financial products or instruments nor investment advice thereto. Any opinions and views expressed herein are subject to change. Neither Dimensional Hong Kong Limited nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors. Financial advisors in Hong Kong shall not actively market the services of Dimensional Hong Kong Limited or its affiliates to the Hong Kong public.