The principals and founders of DCA Investment Advisory are fully cognizant of the limits highly diversified investment strategies (i.e. those most commonly employed by mutual funds) have on the probability of realizing consistently higher returns than those produced by a portfolio of stocks mirroring the broad market or an applicable index. As such, we formulate our business model on delivering total portfolio management solutions that deliver exactly what the client needs but doing it in a manner that conforms to our value standards, our views on optimal capital allocation practices, and target expense ratios; as derived from our own knowledge through relevant work experience, conceptual views of investing, economics, and the general workings of the financial service industry. Therefore, we do not view our fee rates for retirement investment solutions, whether with respect to a DCA designed 401k plan or an individual private account investment solution, as low, but rather as reasonable and fair (we do not compromise on delivery features and certainly, we are confident in the quality of intelligence and analytics backing our portfolio designs).

Simply, we achieve our business model objectives by:

1.)  Striving to be honest and true to our core values by not engaging in revenue sharing or other opaque marketing and implementation methods.

2.)  Avoid hiring third party solicitors.

3.)  DCA does not engage in commission based selling practices (hence, we have no incentive to sell you a high paying, commission based annuity contract if said annuity offers no substantial economic value).    

This philosophy is unlike most entities involved in the financial service industry today, as most of the current large companies in the industry have built business models with profit margins predicated on high expense ratios and commissioned based selling practices or other revenue sharing schemes.  This in turn, creates a strong disincentive to do what is right for the client, as the very structure of their business model limits their capabilities in designing best of class investment solutions that are optimal for their clients.  As a result, it is unlikely these firms will ever change their operating practices, as this would require them to admit the fees they impose on clients have little statistical or empirical justification when compared to alternative lower cost solutions available in the marketplace.

One of the main questions that has simultaneously both perplexed and likewise motivated the founders of DCA, is the question of how and why some companies in the financial service industry, whom have long track records of offering poorly performing investment products that have underperformed applicable low cost index funds, have managed to accumulate such high levels of assets under management, sometimes exceeding 100 billion dollars.  The following are three main points all investors should consider when contemplating this paradoxical dynamic that permeates the workings of the financial service industry.

1.)  According to the Investment Company Institute, the simple average expense ratio for a stock mutual fund was 1.46% in 2007 (The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2007). There was over 12 trillion dollars invested in mutual funds at the end of 2007, including over 6.5 trillion in stock funds. According to studies examining and comparing the performance of actively managed mutual funds versus alternative low cost index funds, most actively managed mutual funds will underperform their equivalent or applicable index fund by a margin of one and a half percent or more for time frames of ten years or greater (Happy B-Day Vanguard 500, Smart Money Magazine, August 31, 2006). This underperformance is even more substantial when factoring in mutual funds that have shut down, merged, or otherwise dissolved due to poor performance (MUTUAL FUND SURVIVORSHIP, Mark M. Carhart, Jennifer N. Carpenter, Anthony W. Lynch, and David K. Musto, August 9, 2001)( Actively Managed Funds: A Loser's Game? OCTOBER 24, 2002, Business Week).

2.)  There are over 20,000 mutual funds available in the market place. As a result, it is very difficult to pick a fund that will consistently perform well. Making the task even more perplexing, is the fact that studies have demonstrated that neither fund size, Morningstar ratings, or past performance data, act as reliable guides for predicting future fund performance (Financial Research Corporation, “Predicting Mutual Fund Performance II: After the Bear.” 2002). 

3.)  Is it not reasonable to assume, given the numerous studies conducted on the subject of mutual fund performance, combined with the widely disseminated nature of these studies, including publication in commonly subscribed to financial news journals such as Business Week Magazine, that these firms are fully conscious of this dynamic and therefore, knowingly offer inferior investment products to clients (there are several ways one can organize and manipulate the data in order to formulate a probability computation of picking a mutual fund that will outperform its applicable index over a 10 year time period, but generally, a reasonable and conservative number is that over 90% of mutual funds will underperform their respective target or comparable index over said time frame).