IMS Brochure

IMS Brochure

Dated December 31, 2019

Interfund Management Services, Inc.
109 S Grady CT
Spokane Valley, WA 99016

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

Phone: 888-390-0097
E-mail: john@imsincome.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

On December 31, 2019, IMS Growth & Income was renamed IMS Growth. See “Methods of Analysis, Strategies and Risk” to review reasons for the change.

Robert Welsh and Ron Krehbiel have retired and are no longer associated with IMS as registered representatives.


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 Growth & Income portfolio strategy and the IMS Income 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 $20,000 for individuals and no minimum for participants in 401(k) plans.  The designated custodian for all IMS portfolios is Equity Trust Company, 1 Equity Way, Westlake OH 44145.

IMS does not distribute the investment income associated with either the IMS Growth & Income portfolio strategy or the IMS Income portfolio strategy.  Investment income generated by portfolio investments is retained within each investors account.

Neither portfolio strategy is 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 strategies are managed on a discretionary basis.  On December 31, 2019 the amount of assets held by the custodian Equity Trust Company for all IMS client accounts totaled approximately $17,222,578.

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, 75, continues to enjoy excellent health.

Fees and Compensation

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

IMS Growth:  The management fee for individual accounts invested according to the IMS Growth & Income portfolio strategy is 0.15% per month, or approximately 1.8% per year.

The management fee for institutional accounts invested according to the IMS Growth portfolio strategy is 0.1% per month, or approximately 1.2% per year.

Management fees are deducted monthly from each client’s custodial account. 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. Generally speaking, management fees are negotiable for accounts over $2,000,000 and for institutional accounts.

IMS clients who maintain assets in both IMS mutual fund strategies may be granted a reduced or uniform fee for the IMS Growth strategy to facilitate transfers of funds between the two strategies.

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 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 into 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 individuals and for institutional accounts. The minimum account size for any one of the three portfolios strategies is $20,000.  The minimum is waived for clients who have more than one account, such as a Roth IRA account owned by a client for whom IMS manages their IRA account. The minimum account size is also waived for institutional accounts that allow employee choice of investments.

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 strategy 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 investment strategy 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 strategy.

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 strategy. In addition, the software program Trade interfaces with the FastTrack database and IMS parameters to assist in determining general portfolio buy and sell signals for the IMS Income portfolio strategy.

The frequent trading of mutual funds adds transaction costs for those trades that incur a transaction fee. Additionally (and most important for individual accounts that are not invested in an IRA or through an institutional account) frequent trading causes net gains to be taxed at the client’s highest marginal tax rate. The tax advantage of long-term capital gains is seldom realized by individual accounts in either of the IMS portfolio strategies.

The risk of loss associated with the portfolio strategies differs for the equity mutual funds selected for the IMS Growth & Income portfolio strategy and the high yield mutual funds selected for the IMS Income portfolio strategy. The IMS portfolio strategies can be characterized as follows.

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

IMS Growth: The IMS Growth strategy is invested in equity mutual funds with the money market as an occasional alternative for some investment positions. The IMS Growth portfolio strategy will not increase the money market position to over 50%, except during conditions IMS considers extreme. The money market position is characteristically determined by IMS based on recent stock market activity.

NOTE: NAME CHANGE for IMS GROWTH & INCOME:

On December 31, 2019 the name IMS Growth & Income was changed to IMS Growth to more accurately describe the investment strategy. The growth mutual funds that are held in the IMS Growth investment portfolio generate very little investment income. The name change better differentiates the two IMS portfolio strategies: IMS Income as a low-risk investment and IMS Growth as a high-risk investment.

Risks associated with equity mutual funds:

IMS selects equity no-load mutual funds for the IMS Growth (D) portfolio strategy or invests in the money market from time to time in lieu of one or more of the equity mutual fund positions for defensive purposes.

PRIMARY RISK.  Equity mutual funds are generally considered to have less risk than an investment in a small number of stocks due to the diversity of their stock portfolios.

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

It is not unusual for an equity mutual fund to decline more than 50% during a bear market and many have declined 70% or more.  Investors in the IMS Growth & Income portfolio strategy are exposed to a significant loss of assets as a result of investing in equity mutual funds.

SECONDARY RISK.  A secondary risk of the IMS Growth (D) portfolio strategy is associated with the attempt of these programs to mitigate risk by trading to the money market position from time to time for defensive purposes.  The IMS Growth (D) portfolio strategy sells the equity mutual fund positions and invests in the money market at the discretion of IMS.  The secondary risk is that the performance of an IMS Growth (D) client account can be adversely impacted by trading out, and then later back into, the equity mutual funds.  The IMS practice of the short term trading of equity 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.

Risks associated with high yield mutual funds:

IMS selects high yield no-load mutual funds for the IMS Income portfolio strategy, or 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 principle payments.

SECONDARY RISK.  A secondary risk of the IMS Income portfolio strategy is associated with the attempt of the IMS Income strategy 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 strategy 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 portfolio strategy trades out and back into the high yield mutual funds two to three times a year.

 

Additional Disclosures and IMS Policies

References 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 or to IMS Growth (D) as portfolio strategies, 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 the IMS Income, or IMS Growth, is suitable for the client’s current circumstances.

IMS management fees are monthly 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 Growth (D) portfolio strategy.

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, 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 50% 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 provide investment discretion to IMS to manage securities on their behalf through an investment advisory agreement with IMS and through the agreement they execute with the custodian.  Advisory clients can terminate the investment advisory agreement with IMS at any time by providing written notice.

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 Reprentatives associated with IMS as of the date of this brochure are listed below.

John Krehbiel (DOB February 18, 1944) 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 (DOB December 17, 1937) 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 pactice 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 (DOB August 11, 1965) 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 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 (DOB August 28, 1950) became an investment advisor representative of IMS in 2014.  Don has 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 has served as sales manager or general manager for distribution firms associated with the paper and food industries since 1995.  Mark lives in Enumclaw, Washington and is supervised from the IMS home office in Spokane Valley, Washington.