Webinar given by Cale Smith and Zack Miller.

1. From the Ground Up: Building a
Successful Money Management
Business
Presenter: Cale Smith, Founder, Islamorada Investment Management
Moderator: Zack Miller, Author, Founder, NewRulesofInvesting.com
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2. Zack Miller Cale Smith
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4. • Since August 2008
• Value investing firm
• Two funds: Tarpon
& Gecko Folio
• Just Spoke Funds®

5. Why Islamorada?

6. Never a better time for Spoke Funds®…

7. ”We must work to establish a "fiduciary
society", where manager/agents
entrusted with managing other people's
money are required... to place front and
center the interests of the owners they
are duty-bound to serve.”
- JOHN BOGLE
Founder, The Vanguard Group

8. Introduction
3 years down, 37 to go.

9. Stages of Growth
One- One- One-
man man +
man +
Firm
V.A.’s
FTE
IIM is here now

10. Welcome to Small Business!

11. Putting up good numbers is goal #1.

12. Initial Focus #2
(Your Investors)

13. Initial Focus #3
Trade-offs…
- One-man firm
- Old car
- Office in a
former
explosives
storage facility?

14. Natural Fit
Spoke Funds & Value Investing
- Minimal trading
- Excellent cost control
- Long-term emphasis
- Certain ethics
- Right kind of investor!

15. Three Approaches
1.
2.
3.
Long Term
Short Term
Efficient
Market
Fundamental
Fundamental Technical
(Value)
Asset
Allocation
Changes Momentum
Price/Vol
Gaps
Charting

16. Value Investing
“We want the business
to be one (a) that we
can understand; (b)
with favorable long-
term prospects; (c)
operated by honest
and competent people; 0 B
Net worth $5
and (d) available at a
very attractive price."

17. Top 3 Problems with Mutual Funds
1. $400K/year
2. In a box
3. Model is broken!

18. “Model is Broken”
The vast majority of mutual funds…
chronically underperform, charge fees that are too
high, own too many stocks and trade too much.
Mutual funds force taxes onto their investors,
make their fund managers inaccessible
and spend investors’ money as if it were their own.
The majority of mutual fund managers do
not own a single share in the funds
that they manage.

19. Mutual Funds
A good idea gone wrong.

20. Top 3 Problems with Hedge Funds
1. No advertising
2. No retirement assets
3. “Deserving vs.
Earning”

21. Hedge Funds
“A compensation scheme
masquerading as an asset class.”

22. Criteria
1 – The “no lackey” rule
2 – Grow my own wealth best
way I know how
3 – Something I’d want my
friends and family to invest in
4 – Stay focused on research

23. Spoke Funds®
All in it together.

24. Definition
“A group of separate investor
accounts linked to a portfolio
containing a significant
portion of the liquid net
worth of that fund’s
manager.”

25. Spoke vs. Mutual Fund
Pros:
- Lower start-up costs
- More flexibility in investment style and
strategy
- Easier administration
- More transparency
- lower opex
Cons:
- Direct retail sales model (Geico vs State Farm)
- Educational hurdle

26. Spoke vs. Hedge Fund
Pros:
- You can advertise!
- Lower start-up costs
- Easier administration
- More transparency
- You can look Mom in the eye
Cons:
- Not ridiculously lucrative
- Compliance (though investors may see as a pro)
- No shorting and only listed stocks (on FOLIOfn)

27. Key Vendor
• Met all my original criteria and then some.
• Most investor-friendly (website, security,
insurance, tax lots, trading windows).
• Most portfolio manager-friendly (admin,
compliance, support).

28. Taxes and Trading
Average Mutual Fund
Turnover?
89%
Sources: Tweedy Browne, Morningstar

29. Why Fees Matter
Average Mutual Fund
Fees?
1.73%
Sources: Karceski, Livingston, O'Neal, "Mutual Fund Brokerage Commissions,"
January 2004.
Shoven, Dickson and Sialm, "Tax Externalities of Equity Mutual Funds," April 2008.

30. Economics of Spoke
Funds

31. Scalability
1 PM : 500 Investors or more ?
The Buffett Cap:
$20M AUM x 90 bips
$180,000 Rev
:: 500 clients w/ $40K accounts
and at 10 clients per month, reach
$20M in 4 years

32. Planning Guidelines
Assume $10K to launch and $25K a year in opex
to run standalone spoke fund company.
Revenue: AUM x bips (to firm not FOLIO)
$10M x 0.90% = $90,000
Business Breakeven (@90 bips, all big accounts):
$4.0M AUM
($4m x .009 = $36k Rev and $35K cost)

33. Key Equations
What should my account minimum be?
Account Breakeven:
Total Yearly Account Cost / Total Expense Ratio
= Minimum Account Breakeven
Say FOLIOfn cost is $100 and ratio is 1.25%
Breakeven = 100/.0125 = $8,000 account
Note: Lower your fees, higher your minimum

34. Key Equations
To subsidize or not to subsidize?
Subsidy Amount:
[Expense Ratio x (Acct. Breakeven – Min.
Investment )] x Number of Accounts = Amount to
Subsidize
[.0125 x ($8,000 - $5,000)] x 20 = $750/year
Note: Assets attract assets!

35. Possible Pre-Launch Budget
Compliance & Reg (RIAinaBox): $2,500
Computer and Gear: $1,500
Software: $750
Stationary & Printing: $750
Website/Blog: $2,000
Grab-Bag (Company Docs, Office, Research):
$2,500
Total: $10,000

36. Possible Post-Launch Budget
Advertising: $10,000
Compliance Fees: $500
Office Expenses: $5,000
Stationary & Printing: $500
Research: $5,000
Phone, IT & Internet: $1,500
Licenses, travel, meals: $2,000
Subsidies: $500
Total: $25,000

37. Running A Spoke
Fund Company

38. Org Chart Year 1
You

39. Eventual Org Chart
Portfolio
Sales & Manager
Admin
Marketing
-CEO/CIO
- QuickBooks
- Online
-Strategy
- Compliance
- Local
-Research
- Cust Svc
- Collateral
-Trades
- Onboarding
- Funnel
-Writing
= Could be virtual assistants

40. Sales Funnel
Prospect: “Lead that signs up for
monthly newsletter” (600).
If 5% convert, means 30
want to meet or call
If 50% of those convert,
Then 15 new clients.
Key is increasing newsletter
sign-ups to acquire investors
at cost of $0.00

41. Marketing Mix During Start-Up
Online: website, blog, FB,
Twitter, newsletter, SEO
Grassroots: events,
seminars,
associations, sponsorships
PR: press releases
70% Online
20% Grassroots
Branding: Paper ads, direct
5% Public mail, mentions in press
Relations
5% Branding

42. Importance of
Technology

43. Tools I Use
EchoSign – secure electronic signatures
WordPress – easy blog and site updates
Evernote – Operations Manual and random notes
QuickBooks Online – easiest way to use VA
Google Reader – Blogs, sites and SEC filings
Things & Google Calendar – Essential
FormRouter (moving to WuFoo) – client onboarding
iStockPhoto.com – cheap images for collateral
Highrise – perfect CRM
Basecamp – to coordinate with VA’s
DropBox – instead of a server
Shoeboxed – scan receipts
ScreenFlow – movies on the Mac

44. Top 5 Tools
1. iPhone
2. EchoSign
3. Evernote
4. Things
5. Highrise

45. EchoSign
“OnlineElectronic Signatures.” Totally
secure, totally quick, totally a
timesaver.
From Free to $400 a month.
Saves hours and $$$ compared to
faxing, Fedex’ing routine.

46. EverNote
“Like a brain in the cloud.” Capture
everything, organize it and find it
fast. From anywhere.
From Free to $50 a year.
Home of our Operations Manual. Best
place to put random thoughts,
passwords, lists.

47. Things
“To-do list on steroids.” Task
management and general
productivity.
Costs $50
Best way I’ve found to really stay on
top of everything.

48. Highrise
Most important tip I got when I started
out:
“Get yourself a good CRM tool.”
From $29/mo to $99/mo in suite
Absolutely critical to advancing the
sales funnel.

49. Q&A
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50. More Info:
www.SpokeFund.com
Cale Smith – www.IslaInvest.com
Zack Miller - NewRulesofInvesting.com
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