Telling Your Clients the Dimensional Story
Everybody loves a good story. And they love it even more when it helps them understand something they really need to know. As financial advisors, we sometimes get so caught up in the day-to-day “busyness” of our work and our lives that we forget how important it is to keep the big picture in front of our clients. But fortunately for us, one of the best ways to keep showing that big picture is by telling a good story.
If you are part of the Dimensional Fund Advisors ecosystem, you have access to one of the best stories in the financial services world. It’s a story of brilliant minds, absorbing financial research, and thrilling results. It’s got Nobel Prize–winning characters, dedicated staffers, and best of all, it’s got an impressive record of success in the marketplace. You and your firm are in the enviable position of being able to offer the benefits of those who created the Dimensional story to your clients, helping them along the way to achieving their most important financial goals. Why wouldn’t you want to put this story in front of your clients as often as possible?
You can start by reminding your clients of the groundbreaking research of Eugene Fama and Kenneth French as they developed the Three-Factor Model for understanding equity returns. With this pioneering, peer-reviewed financial model, a relatively simple, easily implemented method for constructing equity portfolios began to gain acceptance among financial professionals. Fama’s visionary research was recognized worldwide in 2013, when he shared the Nobel Memorial Prize in Economic Sciences for “empirical analysis of asset prices.” It’s hard to get a stronger endorsement for the validity of research than a Nobel Prize, but the Dimensional story has that kind of credibility already built in.
Of course, a great idea is only that until someone figures out how to implement it in the real world. And in 1981, that’s exactly what David Booth and Rex Sinquefield did when they launched Dimensional Fund Advisors, basing their investment philosophy on the teachings of Fama and French, under whom Booth and Sinquefield studied at the University of Chicago. With some $600 billion in AUM at the end of 2019, Booth and Sinquefield’s application and extension of the ideas of Fama and French has proven its value to investors all over the world.
Dimensions of Investment Returns
The Dimensional story is built on empirical research, and they have taken the science of investing to a whole new level. Understanding the Fama-French factors of capitalization size, value vs growth characteristics, and market risk as “dimensions” of expected return that could be realized in a portfolio, Booth and Sinquefield designed mutual funds configured to capture these dimensions. They reasoned that a disciplined strategy of emphasis on these dimensions in equity portfolios, adhered to over time, would give patient investors better opportunities to allow market pricing to work in their favor.
Has this investment philosophy been successful? Indeed it has, and this is the part of the Dimensional story that your clients have been waiting to hear. Since 2000, only 17% of equity and fixed income funds that were in existence at that time have outperformed their benchmarks as of 2020. By contrast, 81% of Dimensional funds have bettered their benchmarks during the same period. For many investors, this is a very happy ending, indeed.
Here’s how the folks at Dimensional explain it:
“Rather than attempting to predict the future or outguess others, we draw information about expected returns from the market itself—leveraging the collective knowledge of its millions of buyers and sellers as they set security prices.
Trusting markets to do what they do best—drive information into prices—frees us to spend time where we believe we have an advantage, namely in how we interpret the research, how we design and manage portfolios, and how we service our clients. We take a less subjective, more systematic approach to investing—an approach we can implement consistently and investors can understand and stick with, even in challenging market environments.”
Consistency and discipline, in up markets and down markets: isn’t that the kind of story you want to be telling your clients?
The Never-Ending Story
And the story is still going on, as the analysts and researchers at Dimensional continue to study, revise, refine, and expand their asset and market modeling philosophies to remain on the leading edge of financial research. In 2012, the company added a fourth dimension—profitability—to its model, and as recently as 2019, they have added a fifth: investment (the differential between companies that practice a high rate of re-investment and those with lower rates). In other words, the story at Dimensional is one of ongoing, relentless self-improvement in a quest to deliver the very best possible client experience.
When you think about it, isn’t that the story you want your firm to be telling, too? Your aim is to offer your clients transparency, reliable guidance, and dependable results, year after year. You want your clients to trust absolutely in your expertise, commitment to their best interest, and access to the latest research. You want them to know that you are doing your best for them, every day, as you bring to them the benefits of professionalism, fiduciary care, and world-class investment practices.
So by now, you should have put it all together: by telling your clients the Dimensional story, you can tell your own story even more effectively. It’s a story of unwavering focus, award-winning financial science, and absolute dedication to achieving maximum results for investors. It’s the Dimensional story—and it’s your story.
It’s the story your clients really want to hear.
Need help telling your story? Contact us today.