Dimensional Core Plus Portfolio Strategy Disclosure

Betterment Advisor Solutions offers a Dimensional Core Plus ETF Wealth Models portfolio strategy (“Dimensional Core Plus”) to Advisors and their advised clients who wish to invest in a model portfolio composed of exchange traded funds (“ETFs”) managed by Dimensional Fund Advisors (“DFA”) that seek returns through a strategic asset allocation. 

The Dimensional Core Plus portfolio incorporates ETFs that are actively managed by DFA, and does not weight holdings based on market capitalization. Rather, DFA’s management of securities within the ETFs is based on certain factors that it believes have been identified in academic research as persistent drivers of investment returns. DFA Equity ETFs target holdings based on size (measured by the return difference between small capitalization stocks and large capitalization stocks), value (measured by price relative to ‘fundamentals’, such as book value and free cash flow), and profitability, among others. DFA Fixed income ETFs target fixed income holdings based on duration, credit and currency of issuance, among others. While the ETFs are constructed based on these factors, DFA actively manages the portfolio’s allocations to the ETFs according to its strategic asset allocation views. 

The Dimensional Core Plus portfolio strategy is made up of asset classes to categorize global market exposures included in the portfolio strategy (for example, international equity or U.S. short-term bonds), but only includes ETFs issued by DFA. DFA may, at its discretion, change the relative weights of sub-asset classes at a given advisor- or client-chosen portfolio allocation between stocks and bonds. For example, the target percentages of U.S. stocks, international developed market stocks, and emerging market stocks in a portfolio may vary even though advisor and/or client makes no change to the portfolio’s overall allocation between stocks and bonds. Because the Dimensional Core Plus strategy is limited to DFA-issued funds, it may use less liquid funds that may make it more difficult to buy and sell certain ETFs in the portfolio without affecting their prices, relative to other broad-market ETFs. In addition, DFA ETFs may have higher fund fees relative to other ETFs that could achieve exposure to the same asset class. Because DFA constructs the portfolios out of its own funds (on which it determines its own fund fees), it does not have an incentive to select the lowest cost funds (or to price its funds as competitively) as a portfolio manager choosing between a number of different asset managers' funds.

Generally, DFA provides updated allocations quarterly for its Dimensional Core Plus portfolio strategy to reflect adjustments to its strategic asset allocation, which may result in increased portfolio turnover relative to other portfolio strategies that do not make strategic adjustments to asset allocation at as frequent of a cadence. Such portfolio turnover may lead to increased trading costs relative to other portfolios with less turnover. Although Betterment will endeavor to implement changes to the Dimensional Core Plus portfolio as soon as possible after they are communicated by DFA, Betterment retains discretion on whether and when to implement any such changes.

There are several features of Betterment’s service that either will not work or will work differently for the Dimensional Core Plus portfolio.

Investors considering the Dimensional Core Plus portfolio should also understand how it impacts the operation of Betterment’s Tax Loss Harvesting+ (“TLH+”) feature. Betterment typically implements its TLH+ feature by shifting allocations among three ETFs in each sub-asset class. The Dimensional Core Plus portfolio strategy is compatible with Betterment’s TLH+ feature, but there may be fewer opportunities to harvest losses in the Dimensional Core Plus portfolio relative to other portfolio strategies that Betterment supports. In addition, electing the Dimensional Core Plus portfolio for one or more goals in your account while simultaneously electing a different portfolio for other goals in your account may reduce opportunities to harvest losses. See Betterment’s Tax Loss Harvesting+ disclosures for further detail. When electing to use TLH+ with a client’s goal, Advisor is responsible for determining that the security groups in the Dimensional Core Plus portfolio are not “substantially identical” as that term is used in the Internal Revenue Code (“IRC”) Section 1091 concerning wash sales, and not Betterment nor DFA. In addition, the Dimensional Core Plus portfolio strategy is compatible with Betterment’s Tax-Coordinated Portfolio feature, but all accounts in the tax coordinated portfolio must use the Dimensional Core Plus portfolio strategy. The Dimensional Core Plus portfolio may not substitute municipal bonds for aggregate bond exposures within taxable accounts, as the Betterment Core portfolio does. See Betterment’s Tax-Coordinated Portfolio disclosures for further detail.

The Dimensional Core Plus portfolio strategy is compatible with Betterment’s portfolio rebalancing feature but is not compatible with auto-adjust. Betterment typically attempts to rebalance a client’s account when a portfolio is identified as having drifted from its intended allocation outside of certain tolerance parameters and when Betterment’s rebalancing algorithm can identify sufficient rebalancing opportunities (i.e., trades) to reduce drift. The tolerance parameters Betterment uses to rebalance the Dimensional Core Plus portfolio may change over time. Betterment will recommend an initial allocation but will not provide a glide path for goals for which the Dimensional Core Plus portfolio is elected, and Betterment’s auto-adjust feature is unavailable for the Dimensional Core Plus portfolio. See Betterment’s Auto-Adjust and Rebalancing disclosures for further detail.