Kenneth French reveals best way to add value for clients

Forget stock picking and stick to wealth management, says Dartmouth prof; ignore 'investment porn'
JUN 07, 2012
The best way for an adviser to add value to a client is to help them manage their wealth, not just their portfolio. That's one of the main messages that came out of the first day of Dimensional Fund Advisors' introductory conference for advisers. DFA's philosophy, for the uninitiated, is based on the academic research of Eugene Fama and Kenneth French. Their research found that it's impossible to beat the market through picking stocks over any period of time. To hammer the point home, the first day ended with a panel on “investment porn” that poked fun at the financial media's predictions of stocks to buy or when to get out of the market. The predictions were all based on analyst and portfolio manager analysis. Since you can't reliable beat the market, Fama and French argue, you're better off just owning it, though their research shows that small-caps tend to outperform large-caps and value tends to outperform growth. Thus, even though DFA's funds own a tremendous amount of stocks, they still tilt towards small-cap and value. This caused some concern for at least one of the 60 or so advisers in attendance. During Mr. French's presentation, he asked what an adviser who isn't picking stocks or managers to charge as a fee. Mr. French, who revealed he has his own financial adviser, replied that the questioner was thinking about it the wrong way. “You need to frame yourself as a wealth manager, not a portfolio manager. Estate planning, setting and reaching goals, and tax planning are ways that an adviser can truly add value,” he said. “Then you can find a fee level that both you and the client are comfortable with.” DFA is hosting the conference this week at its headquarters in Austin, Texas. To be eligible to sell DFA funds, advisers must complete a screening process that culminates in the two-day introductory conference. DFA hosts eight such conferences annually.

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