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Misaligned Expectations
Plus February Market Review

John Gorlow | Mar 20, 2019

CardiffPark_PerspectiveYou may have seen recent news reports about financial institutions being chastised by Congress, fined by the SEC, and otherwise called out for various forms of wrongdoing and self-serving behavior. These stories collectively point to an ever-growing misalignment between financial institutions and the people they serve, who rightfully expect to be protected rather than taken advantage of. This month we demonstrate how misalignment occurs, and how Cardiff Park safeguards against it. First, a review of February markets. 


February Market Review


Global Markets

For the month, global markets as measured by the Morgan Stanley All Country World Index posted a 2.67% return, after January’s broad 7.9% gain, bringing its year-to-date (YTD) return to 10.78%. Over the one-year period, global markets were down negative -0.84%. But longer-term yardsticks are more encouraging, as the two-year annualized return was 8.53% and the three-year return was up 12.87%.


US Markets

In February, the S&P 500 continued where January left off, posting a broad 3.21% return after January’s 8.01% gain, mostly negating December’s -9.03% fall. For the three-month period, the index was up 1.42%. The index returned 11.48% YTD. For the one-year period, the index returned 4.68%. The two-year annualized return was 10.72% and the three-year annualized return was 15.28%.


S&P SmallCap 600

After posting a negative -12.07% return in December, the S&P SmallCap 600 came back with a 10.64% return in January and a 4.25% return in February, bringing year-to-date returns for the index to 15.24%. For the three-month period, the index was up 1.52%. For the one-year period, the Small Cap index returned 7.2%, outperforming the S&P 500 index.


International Developed Markets

International developed markets, as measured by the MSCI World Ex USA index, were up 2.57% for the month, following January’s 7.14% return, bringing YTD returns on the index to 9.89%. For the three-month period the index returned 4.21%, but remained in the red for the one-year period, returning negative -5.3%. Looking at longer-term yardsticks, the two-year annualized return was 6.1% and the trailing three-year annualized return was a healthy 9.48%.


Emerging Markets

Emerging markets as measured by the MSCI Emerging Markets index returned 0.22% for the month, following January’s 8.67% return, bringing the YTD return for the index to 9.0% and the trailing three-month return to 6.11%.  For the one-year period, the index remained in the red, off negative -9.89%. Looking at longer-term horizons, the two-year annualized return was 8.45% and the three-year annualized return was a healthy 15.04%.


Real Estate Securities

US Real Estate securities, as measured by the Dow Jones US Select REIT index, were up 0.96% for the month, after January’s 11.41% return and December’s -8.59% decline. YTD the index is up 12.49%. For the three-month period the index returned 2.82%. For the one-year period the index returned 20.9%. International REITS, as measured by the S&P Global Ex US REIT index, fell -0.82% for the month after January’s 9.69% return and December’s -1.44% decline. YTD the International REIT index is up 8.79%. For the one-year period, the index returned 3.08% and for the two-year period, the index returned 6.28% annualized.


Fixed Income

The 10-year U.S. Treasury Bond closed February at 2.72%, up from last month's 2.64%. Oil increased to close at $57.25 from last month's $54.13. U.S. gasoline prices increased, closing the month at $2.471 from last month's $2.34 per gallon. Gold was down, closing at $1,314.70 from last month's $1,324.80. The Bloomberg Commodity Total Return index gained 1.01% in February following January’s 5.45% gain and December’s -6.89% loss. YTD the commodity index returned 6.51%. For the trailing three-month, one-year, and two-year period, the commodity index remained in the red by negative -0.82%, negative -1.66%, and negative -5.67%, respectively.


Feature Article

When Customers Come Second


In a world filled with daily reports of questionable business practices, here are a few of the financial news stories we followed last month:


• The CEO of Wells Fargo appeared before the House Financial Services Committee to explain the bank’s ongoing clean-up measures after one of the biggest banking scandals in history. In a story reaching back to 2016, the bank previously admitted to opening more than 3.5 million unauthorized customer accounts, charging fake fees on mortgages and other products, and applying a host of aggressive, deceptive sales tactics. Wells Fargo earlier acknowledged some retaliation against employees who attempted to report or correct these behaviors.


• The SEC ordered some 80 investment advisory firms to reimburse customers approximately $125 million in fees. The infraction: steering clients into high-fee funds without informing them of comparable lower-fee choices. Some of the biggest names in the investment world were fined, including AXA Advisors, Deutsche Bank, LPL Financial, Oppenheimer, Raymond James, TIAA-CREF, Transamerica, and Wells Fargo.


• Last year, JP Morgan Chase launched an exchange-traded fund that invests in Japanese stocks. According to the Wall Street Journal, “the fund raised $1.7 billion in six weeks, making it one of the fastest ETFs ever to surpass $1 billion in assets.” It isn’t illegal to guide clients into in-house funds, but this practice benefits companies ahead of the clients they serve. It’s lucrative for the in-house seller of the fund, and can create divided loyalties for in-house portfolio managers. And yet the sale of in-house funds to existing clients is a common practice.


Each of these stories illustrates how easily investor interests can be subverted. They also illustrate what happens when financial regulations and controls are eased. Many of the safeguards put in place after the financial crisis of 2008 have been stalled or dismantled. The Consumer Financial Protection Bureau lifted policies designed to protect against fraud and predatory lending practices, then paused all ongoing consumer protection enforcement and regulatory actions. While financial institutions applaud these changes, investors would be wise to consider the harm these diminished protections pose to themselves and the economy as a whole.


How Misalignment Happens

Most of the wrongdoing we hear about in the financial news is the result of companies putting their interests ahead of customers. Cases of outrageous fraud receive most of the media attention, but deep conflicts of interest cost unsuspecting investors hundreds of millions of dollars every day. This is due to a fundamental misalignment in most relationships between financial Institutions and their customers. Banks, wealth management firms, Wall Street investment houses and their advisors like to think of themselves as client-focused professionals, yet much of their effort is focused on the bottom line. Their dominant interest is maximizing profits for parent companies and shareholders, as opposed to serving their clients’ best interests. This is the profit-seeking paradox. It’s short-sighted, and it’s deeply troubling because businesses are rewarded for doing well without doing good. The negative impact on the people they serve is often substantial.


Investors’ lack of knowledge works against them from the outset. Most financial consumers trust and follow industry advertising to financial brokers and sales people whom they believe to be unbiased advisors, when in fact these advisors operate under the Suitability Rule, a lax standard that enables sales commissions to be collected on products sold into investor portfolios. Once inside the fold of these institutions, clients are easy targets. Misalignment plays out in high fees, high-risk investments, lack of consistent strategy, high portfolio turnover and self-serving investments in which client portfolios are packed with in-house funds, structured products, private placements and annuities.


Most investors do not see these lopsided relationships as abnormal because the misalignment isn’t self-evident and everyone is in on the game: commissioned brokers and financial advisors, banks, brokerage firms and insurance companies, financial authors and bloggers with vested interests, and just about anyone with a proprietary financial product or fund to sell. Investors fail to understand that they are profit centers generating cash flow for industry executives who may publicly extol principled behavior, but privately bend the rules in the pursuit of profit.


How Cardiff Park Aligns with Investor Interests

Cardiff Park Advisors was born from the desire to lay emphasis on some very old ways of thinking on ethics and excellence in business. Ours is a perspective that has become lost in the contemporary world of financial services, a world based on what’s permissible rather than what’s right. Our focus is on bringing all the components of the financial services value chain into alignment, keeping people on track to achieve their goals with fee-only advice, low-cost funds, a consistent and provable investment strategy, trustworthy fund partners and custodial platforms, complete account transparency, and a long-term perspective.


Over the past 15 years, we’ve earned the loyalty of our clients by putting their interests first and delivering high quality, inexpensive solutions in exchange for long-term relationships and reasonable compensation. We are motivated not primarily by profit, but by a high standard of professionalism. We offer valuable products suitable for long-term investing, and come to work each day with a deep sense of responsibility and loyalty toward our clients. We are part of the fabric of a larger, interconnected community of financial service partners who operate with the same integrity.


Think of alignment as a structure, each element contributing to the achievement of long-term goals and objectives. To be effective, this structure must be built without any weak or out-of-alignment components. The house that Cardiff Park has built is irrefutably solid. It’s far different than the financial houses you hear about so often in the news.


Here’s how:

• Cardiff Park Advisors operates solely as a Fiduciary advisor, meaning we put client interests first. Being a Fiduciary eliminates countless conflicts of interest. We don’t mix advice with a sales-based brokerage approach to business. That means no commissions, no illiquid products, no back-end fees, and no roadblocks to accessing one’s money.


• Our services are fee-only, and our fixed retainers are our sole source of compensation.


• We don’t accept custody of client assets. Clients are free to choose among custodians with whom we have built relationships. Our clients can view and access their funds 24/7 through the custodian portals.


• Our investment strategy is backed by a century of empirical data and Nobel prize-winning research on how markets work. Clients always know the underlying basis of our guidance. We develop individual, diversified portfolios, model a pathway to success, then demonstrate how to fund a long-term plan cost efficiently.


• We have carefully selected our two primary fund partners. Dimensional and Vanguard Funds are independent companies with clearly defined strategies and a consistent focus. DFA is privately owned and Vanguard is owned by its investor-shareholders. Neither company is obligated to parent companies or public shareholders, enabling them to operate as fiduciaries focused on their clients’ best interests. Both companies are subject to strict regulatory controls and protective protocols.


This is who we are in a nutshell. Motivated by principles over profit, Cardiff Park operates with consistent integrity, character and sound judgment in relationships with our clients, partners, and our team. We value our independence and take great pains to preserve it. Clients trust in our experience and knowledge and consider us their ally. The ultimate reward is their ongoing support and satisfaction. That’s a lesson to pass along.


Do you have questions or concerns? Call us. We are here to help.



John Gorlow
Cardiff Park Advisors
888.332.2238 Toll Free
760.635.7526 Direct
760.271.6311 Cell
760.284.5550 Fax  


Cardiff Park Advisors
7161 Aviara Drive
Carlsbad, CA 92011
Phone (760) 635-7526
Toll Free (888) 332-2238
Fax (760) 284-5550

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