IMS Brochure

IMS Brochure

Dated December 31, 2022

Interfund Management Services, Inc.
Principal Office:
19106 E Sprague – Unit G4
Spokane Valley, WA 99016

Branch Office:
1008 SW 314th Place
Federal Way, WA 98023

Phone: 206-390-0097
E-mail: john@imsadvisor.com
Website: www.imsadvisor.com
CRD Number: 0116103

This brochure provides information about the qualifications and business practices of Interfund Management Services, Inc.  If you have questions about the contents of this brochure, please contact us at 206-390-0067 or john@imsincome.com.  The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.

Additional information about Interfund Management Services, Inc. is available on the SEC’s website at www.adviserinfo.sec.gov.

Interfund Management Services, Inc. (also IMS) registered as an investment advisor in the State of Washington during October of 1993.  This registration does not imply any certain level of skill or training.

Material Changes

IMS conducts business under the trademarks IMS Wealth Management, Interfund Management Services, Inc., and IMS.

IMS offers six portfolio options. The IMS Income model and the IMS Five Funds model combine in different ratios to form the four additional models.

 


Table of Contents

Cover Page…………………………………………………………………………………………….
Material Changes…………………………………………………………………………………….
Advisory Business……………………………………………………………………………………
Branch Office…………………………………………………..……………………………………..
Fees and Compensation…………………………………………………………………………….
Performance-Based Fees……………………………………………………………………………
Types of Clients………………………………………………………………………………………
Methods of Analysis, Portfolio Strategies and Risk of Loss……………………………….
Additional Disclosures and IMS Policies…………………………………………………………
Disciplinary Information……………………………………………………………………………
Other Financial Industry Activities and Affiliations…………………………………………..
Code of Ethics, Participation or Interest in Client Transactions and Personal Trading
Brokerage Practices……………………………………………………………………………………….……..
Review of Accounts……………………………………………………………………………………….……..
Client Referrals and Other Compensation………………………………………………………………
Custody…………………………………………………………………………………………………………..……
Investment Discretion…………………………………………………………………………………………..
Voting Client Securities…………………………………………………………………………………………
Financial Information……………………………………………………………………………………..……
Requirements for State-Registered Advisors……………………………………………….………….

 

Advisory Business

Interfund Management Services, Inc. was registered to provide investment advisory services in October of 1993.  IMS has no subsidiaries and is owned 100% by John H. Krehbiel.

IMS specializes exclusively in the management of no-load mutual fund portfolio strategies. The firm does not offer any other type of service. The two mutual fund portfolio strategies managed by IMS are the IMS Income portfolio strategy and the IMS Growth portfolio strategy. These strategies are available to investors who have established an account with the designated custodian in the selected strategy. The investment minimum for each portfolio strategy is $100,000. The designated custodian for all IMS portfolios is Equity Trust Company, 1 Equity Way, Westlake OH 44145.

IMS specializes exclusively in the management of no-load mutual fund portfolio models.  The firm does not offer any other type of service.  The six mutual fund portfolio models offered by IMS are:

The IMS Income model (from October 27, 1997)

The IMS Five Funds model (new)

80% IMS Income, 20% IMS Five Funds

60% IMS Income, 40% IMS Five Funds

40% IMS Income, 60% IMS Five Funds

20% IMS Income, 80% IMS Five Funds

The six portfolio models are available to investors who have established an account with the designated custodian for the selected model.  The designated custodian for all IMS models is Equity Trust Company, 1 Equity Way, Westlake OH 44145.

IMS does not distribute the investment income associated with the models.  Investment income generated by portfolio investments is retained within each investors account.

The portfolio models are not tailored to the individual needs of clients.  Clients are not allowed to impose restrictions on investing in certain securities or types of securities, except that the owners of the custodial accounts are in the control position with respect to their respective accounts and can direct IMS to buy or sell securities.

The portfolio models are managed on a discretionary basis.  On December 31, 2022 the amount of assets held by the custodian Equity Trust Company for all IMS client accounts totaled $14,849,444.40.

IMS clients are allowed to establish a self-managed account at Equity Trust Company provided the registration information is identical to an account managed by IMS.

Branch Office

On August 5, 2018 an IMS branch office managed by Jamie Low was established at 1008 SW 314th Place, Federal Way, WA 98023 for the purpose of duplicating most of the operational functions of IMS.

Jamie Low currently performs most of the operational and trading responsibilities associated with the IMS investment strategies under the supervision of John Krehbiel.

The practical purpose of the branch office is to provide IMS clients a fully equipped location from which the IMS advisory functions can be performed. The principle office in Spokane Valley, managed by John Krehbiel as president, will continue as the primary base of IMS operations as long as Mr. Krehbiel, 78, continues to enjoy excellent health.

Fees and Compensation

IMS Income: The management fee for individual accounts managed according to the IMS Income portfolio program is 0.1% per month, or approximately 1.2% per year.

IMS Five Funds:  The basic management fee for accounts invested 100% according to the IMS Five Funds portfolio model is 0.033% per month, or approximately 0.4% per year.

80% IMS Income, 20% IMS Five Funds:  The monthly management fee for accounts managed according to the 80%-20% model is 0.087% per month, or approximately 1.0% per year.

60% IMS Income, 40% IMS Five Funds:  The management fee for accounts managed according to the 60%-40% model is 0.073% per month, or approximately 0.8% per year.

40% IMS Income, 60% IMS Five Funds:  The management fee for accounts managed according to the 40%-60% model is 0.060% per month, or approximately 0.7% per year.  

20% IMS Income, 80% IMS Five Funds:  The management fee for accounts managed according to the 20%-80% model is 0.046% per month, or approximately 0.6% per year.

Management fees are deducted either monthly or quarterly from each client’s custodial account.  In all instances, the Adviser will send the client a written fee disclosure including the fee, the formula used to calculate the fee, the fee calculation itself, the time covered by the fee, and the amount of assets under management on which the fee was based. Also, the Advisor will include the name of the custodian on the fee invoice. The Adviser will provide these to the client concurrent with the request for payment or payment of the Adviser’s advisory fees. We urge clients to compare this information with the fees listed in the custodial account statements.

The fees are assessed in arrears, not in advance, and IMS clients have the right to terminate their management agreements at any time without penalty.  Management fees are non-negotiable.  Fees can be adjusted by IMS based on certain circumstances, including the ownership of more than one portfolio program, a family related account, or the age of the account.

At the discretion of IMS for any one client account, the fee for one or more months may be set at zero.  The normal fee for any skipped month can never be assessed in the future.  The most common reason for a zero fee is to offset trading fees or other anomalies.

Transaction fees (also discussed under Brokerage Practices below) and any incidental fees, such as custodial fees or wire charges, are assessed by the designated custodian and paid to the custodian from the custodial account.  There are no brokerage or custodial expenses associated with the no-load mutual funds selected by IMS for the client accounts.

IMS clients have the option to purchase many of the no-load mutual funds selected by IMS for their accounts through other brokers, custodians or agents that are not affiliated with IMS.

This Brochure is required to be delivered to an advisory client, or prospective advisory client, not less than 48 hours prior to entering an investment advisory contract or at the time of entering into such a contract.

Performance-Based Fees

IMS does not charge performance based fees.

Types of Clients

IMS manages accounts for individual custodial accounts and for IRA accounts. The minimum account size for each portfolio strategy is $100,000. The minimum is lowered for clients who have more than one account, such as a Roth IRA account owned by a client for whom IMS also manages their IRA account. The minimum is $12,000 for IRA accounts that arrange for automatic monthly contributions from a checking, savings or credit union account is $12,000 and $40,000 for IRA accounts that contribute annually to a non-profit organization.

 

 

Methods of Analysis, Portfolio Strategies and Risk of Loss

General Information concerning Methods, Strategies, and Risk.

The method of analysis to determine which mutual funds are selected for an IMS portfolio model is based on three factors.  The first factor is the frequency the mutual fund can be traded without conflict with the management of the mutual fund.  Second is the relative performance of the qualifying mutual fund compared to other qualifying mutual funds.  Third is the performance of all qualifying mutual funds relative to the money market.  In addition, IMS subscribes to services that rank or evaluate relative mutual fund performance based on other criteria.

Mutual fund buy and sell decisions made by IMS for each portfolio model is based on the resources listed in this section.  Final decisions are made after viewing the graphic performance of mutual fund candidate investments that qualify for inclusion in the applicable investment model.

Qualifying mutual funds must be included in the FastTrack mutual fund database. IMS selection criteria interface with a variety of FastTrack‘s ranking lists to help determine which funds are selected by IMS for each portfolio model. In addition, the software program Trade interfaces with the FastTrack database and with IMS parameters to assist in determining general portfolio buy and sell signals for the IMS Income portfolio model.

Frequent trading causes net gains to be taxed at the client’s highest marginal tax rate for non-IRA or other non-qualified accounts.  The tax advantage of long-term capital gains is seldom realized by accounts in any of the IMS portfolio models.

The two fundamental IMS portfolio models can be characterized as follows.

The IMS Income model is invested in several diversified high-yield mutual funds with the money market as an occasional alternative for all investment positions.  The money market position may occur one or more times per year and is characteristically determined by buy and sell signals generated by the software program Trade as modified by established IMS trading guidelines.

The IMS Five Funds model is invested in five equity mutual funds.

The five mutual funds are selected from among over 6,000 mutual funds and correlated to match the following objectives:

15%  Nasdaq/OTC Fund Objective

40%  The S&P 500 Stock Average

15%  Mid-Cap Growth Objective

15%  Dividend Growth Objective

15%  Balanced Fund Objective

 

Risks associated with equity mutual funds:

IMS selects five equity no-load mutual funds for the IMS Five Funds model.  The model has a substantial level of risk nearly identical to that of the US stock market.

PRIMARY RISK.  The diversity of equity mutual fund stock portfolios is generally considered to allow equity mutual funds to have less risk than an investment in a small number of stocks.

Nevertheless, the risk of owning equity mutual funds is substantial.

 

Risks associated with high-yield mutual funds:

 

IMS selects high-yield no-load mutual funds for the IMS Income model, or, in the alternative, invests in the money market for defensive purposes.

PRIMARY RISK.  High-yield mutual funds have considerable risk.  They invest in bonds that have been issued low ratings by such major rating agencies as Standard & Poor’s and Moody’s.  The ratings are low because it is questionable that the companies that issue the bonds will be able to pay the interest due to bondholders, or to repay the principle when due, or to ever repay the principle.  For these reasons they are often referred to as junk bonds.

The high-yield bond mutual funds selected by IMS for client portfolios are likely to own bond positions that default on their interest payments or on the repayment of principle.  Periods of economic recession or depression are likely to increase the number of bonds held by high-yield mutual funds that default on interest or principal payments.

SECONDARY RISK.  A secondary risk of the IMS Income model is associated with the attempt of the IMS Income model to mitigate the risk inherent in the high-yield bond mutual funds by trading to the money market position from time to time for defensive purposes.  The IMS Income model sells the high-yield bond positions and invests in the money market according to the ranking parameters discussed above.  The secondary risk is that the performance of an IMS Income client account can be adversely impacted by trading out, and then later back into, the high-yield mutual funds.  The IMS practice of the short-term trading of high-yield mutual funds can result in losses that might not occur had the funds been held for the long-term, or in losses of opportunity that might occur had the funds been held for the long-term.  On average, the IMS Income model trades out and back into the high-yield mutual funds two to three times a year.

 

Additional Disclosures and IMS Policies

Refences to Initial Accounts, and to the performance of Initial Accounts in IMS communications, are related to the actual accounts of a Washington State investor.  Advisor does not represent that the performance of individual client accounts will match the performance of the Initial Accounts due to several factors.  These include variances in minimum cash positions, variances in account size, trades associated with account additions and redemptions, and occasional trading anomalies.

Advisor at its discretion may temporarily reduce the monthly client management fee to as low as zero if a client account has performed less than the applicable Initial Account during any current calendar year.  IMS clients may elect to negotiate a temporary zero monthly management fee with Advisor in the event the client has concern with respect to a performance of the client’s account that is lower than that of the Initial Account during any current calendar year for the purpose of more closely matching the performance of the Initial Account.  The remedy of zero fee can include future years, if applicable.

The term Initial Account is not considered by Advisor to have the same meaning or status that the term Model Account might have.  In addition, reference to IMS Income as a portfolio model, does not infer that the performance will be identical or closely identical in all respects for all client accounts.

Advisor is prohibited by regulation not to lower its management fee for the purpose of causing a client account to perform better than the relative Initial Account.

Clients are expected to comply with the regulation that requires a periodic determination that IMS Income, or IMS Five Funds, is suitable for the client’s current circumstances.

IMS management fees are assessed monthly or quarterly in arrears.  Advisor is not compensated by a performance-based fee.

Advisor does not accept the authority to vote client securities with respect to either the IMS Income or the IMS Five Funds portfolio model.

Clients may receive electronic communications from Advisor and/or the custodian ETC sent to the e-mail address provided by the client to the Advisor or to ETC.

IMS clients are not to mail checks to Advisor for any reason.  Checks received by Advisor will be returned to the client together with instructions for forwarding to ETC, if applicable.

IMS clients acknowledge that they have received the Advisors current IMS Brochure (also Form ADV Part 2A) at the time they sign an advisory contract.  Since these clients have not received the IMS Brochure at least 48 hours prior to entering into the contract they have the right of cancellation for five days without penalty.

Disciplinary Information

There have been no legal or disciplinary events related to IMS, to IMS owners, to IMS representatives, or to IMS employees that are material to a client’s or prospective client’s evaluation of the IMS advisory business or the integrity of IMS management.

Other Financial Industry Activities and Affiliations

IMS and its owners, representatives and employees do not have other financial industry activities or affiliations.

 

Code of Ethics, Participation or Interest in Client Transactions and Personal Trading

IMS, as well as its owners, representatives and employees are authorized to buy and sell the same mutual funds that IMS selects for either of the IMS portfolio strategies.  These trades do not constitute a conflict of interest since the influence on the market value of the mutual funds caused by these trades is minuscule, if any.

 

Brokerage Practices

IMS requires that client accounts be placed with Equity Trust Company to serve as custodian.  As indicated, the IMS portfolio strategies invest in no-load mutual funds.  Some of these mutual funds are no-transaction fee funds and others have transaction fees of up to $50 per trade.  The custodian mentioned above is competitive with other custodians with respect to the amount of the transaction fee.

IMS will initiate trades for client accounts that incur brokerage charges, but IMS does not participate in the brokerage charges.  Each client is responsible to determine the reasonableness of the charges compared to those of other brokers.

IMS does not aggregate mutual fund trades for the subsequent distribution to individual client accounts.


 

Review of Accounts

IMS client accounts are reviewed by John Krehbiel, President, or Jamie Low, Branch Office Manager, at the time of trades and monthly or quarterly in conjunction with fee billings.  IMS clients receive regular investment information from the custodian in the form of a monthly or quarterly investment report and can view their account status and account activity at www.equityadvisorsolutions.com/etcclient/, the Equity Trust Company website.

 

Client Referrals and Other Compensation

Investment Advisor Representatives (IARs) licensed through IMS may receive up to 40% of the investment management fees assessed to investor accounts they have referred to IMS.  See “Requirements for State Registered Advisors” to review the IARs who are currently associated with IMS.

Contact IMS to receive a written disclosure of any fee arrangement that may be, or may have been, associated with your account.

 

Custody

IMS has custody of client funds as a result of the authority the client grants to IMS to direct the designated custodian to make securities trades and to deduct investment fees. The designated custodian, Equity Trust Company, serves as the primary custodian and provides quarterly statements to clients that detail balances, trades and other information. All clients associated with any of the three IMS portfolio strategies are urged to review the custodial statements and to carefully compare the information in those statements to information provided in any reports received from IMS.

 

Investment Discretion

Advisory clients enter into an investment advisory agreement with IMS and an agreement with the custodian that gives investment discretion to IMS to manage securities on their behalf.  Advisory clients can terminate the investment advisory agreement with IMS at any time by providing notice in writing or by e-mail.   

Voting Client Securities

IMS does not accept the authority to vote client securities with respect to any of the three IMS portfolio strategies.

 

 

Financial Information

IMS does not require or solicit the prepayment of fees and is therefore not required to provide financial information.

 

Requirements for State-Registered Advisors

IMS is registered as an investment advisor in the state of Washington. Investment Advisor Representatives associated with IMS as of the date of this brochure are listed below.

John Krehbiel has been employed as the President of IMS since 1993.  John graduated with a BA degree from Seattle Pacific University in 1965.  He has managed mutual funds for client portfolios since 1969, except during the years 1990 through 1992, when he financed a real-estate construction business.  John is a registered investment advisor representative, CRD number 0275298.

Verlin Frickel serves as a registered investment advisor representative of IMS.  He majored in music at Western University in 1955, 56 and at the University of Puget Sound in 1961, serving in the US Air Force band during the interim years.  Verlin’s business background includes over ten years as a financial planner and twenty years as a transition consultant for dental practices.  He has been employed by AFTCO Associates as a dental practice transitional consultant since 1986.  Verlin lives in Cedar Park, Texas and is supervised from the IMS home office in Spokane Valley, Washington.  His CRD number is 600670.

Jamie Low serves IMS as Branch Manager, web designer, back-up mutual fund securities trader, and is responsible for the daily operation of the firm’s investment model systems. Jamie’s business background is in computer programming and web development. She graduated with a B.S. in Computer Science from Seattle Pacific University in 1987. Jamie is a registered investment advisor representative, CRD number 5481400. She lives in Federal Way, Washington and is supervised from the IMS home office in Spokane Valley, Washington.

Don Anderson became an investment advisor representative of IMS in 2014. Don retired in 2021 after having owned an independent CPA firm located in Redmond, Washington since 2008, prior to which he was employed by Seattle based CPA partnerships for over 25 years. He had been licensed as an investment advisor representative since 1999. Don lives in Carnation, Washington and is supervised from the IMS home office in Spokane Valley, Washington.

Mark Adams (DOB 11/29/1960) became an investment advisor representative of IMS in November of 2014.  Mark graduated with a BA in business administration from Seattle University in 1984.  He recently retired after serving as sales manager or general manager for distribution firms associated with the paper and food industries since 1995.