Financial Advisors

Are Dimensional Fund Advisors (DFA) A Cult?

It’s Halloween, time for some fun with cults and goblins and the like. Some cults and goblins are good. For years now the press has categorized Dimensional Fund Advisors (DFA) as a cult (see for example NY Times). If it is, the DFA cult is good, as are the goblins in Harry Potter.  Ever wonder why the press calls DFA a cult? Let’s look.

Here are the characteristics of cults and how DFA qualifies. Just for fun, and to bring home the distinction between a cult and a non-cult, I compare myself to DFA (big stretch, right?). Don’t laugh -- I qualify as a cult on one criterion -- but fall far short on another.

The Characteristics of Non-religious Cults

Anti-establishment – Cults are “little groups” that break off from the conventional consensus and espouse very different views of the real, the possible, and the moral.  (John Lofland, Sociologist)

  • DFA has thousands (so “little” doesn’t apply) of adherents to the “Smart passive wins” doctrine: passive investing is better than active. DDA was the first to tilt their passive portfolios toward small value stocks, a tilt that is known today as “Smart beta.”Followers proclaim broad diversification with the mantra “we invest in 12,000 securities.”
  • My work and views meet this anti-establishment criterion. In concert with DFA, I was the first to set a material allocation to TIPS (Treasury Inflation Protected Securities) in my target date funds, the SMART TDF Index, and I agree with DFA that risk is not the right way to compensate for inadequate saving.

 Although I meet the anti-establishment criterion for a cult, I do not meet the next criterion.

Captive – A cult is an ideological organization held together by charismatic relationships and demanding total commitment. (Benjamin Zablocki, Sociologist)

  • DFA has ties to the University of Chicago and some of its most illustrious and charismatic academics, like Professors Eugene Fama and Kenneth French. The business school is named the Booth School in recognition of David Booth, founder of DFA, who contributed more than $100 million to the university. DFA disciples must attend mutual due diligence education in order to have access to DFA services. 
  • I do not meet this criterion. Far from it. I’m likable, but regrettably not charismatic, and I don’t require exclusive use of my services, some of which are complementary to other services.  I’m in serious need of mystically marvelous sales goblins because marketing is everything.

Do you think DFA is a cult? There’s certainly nothing wrong with that, and DFA does meet the definitions above. Regardless of what DFA is, you’ve got to admire and respect their success.

If you’ve read this far, you know who DFA is but you probably are asking “Who is Ron Surz?” You can learn about me here and here. Please join my tribe.

And in case you don’t know who DFA is, you can visit them here.

Happy Halloween. Hope you’ve enjoyed the fun.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Ron Surz

Ronald J. Surz is Chief investment Officer of Glidepath Wealth Management and President of Target Date Solutions (TDS). GlidePath manages Personalized Target Date Portfolios for individual investors, primarily in IRAs. TDS manages commingled Target Date Funds for 401(k) plans. An industry veteran, Ron started his consulting career with A.G. Becker in the 1970s and formed his own consulting firms in the 1990s. With Masters degrees in Applied Mathematics and Finance, Ron publishes regularly and has developed leading edge technologies like the patented Safe Landing Glide Path® tracked by the SMART Funds® Target Date Index.

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