Zack Miller of NewRulesofInvesting.com was joined by Cale Smith of Islamorada Management to discuss an emerging model for asset managers. Smith's model, the Spoke Fund, enables professionals to get off the ground quicker and cheaper than other alternative structures and seems to best align incentives of the manager and his clients.

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

2. Zack Miller Cale Smith

3. Intro to Spoke Funds ® Cale Smith Islamorada Investment Management May 16, 2011

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

10. Welcome to Small Business!

11. Putting up good numbers is goal #1.

12. (Your Investors) Initial Focus #2

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

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; and (d) available at a very attractive price." Net worth $50B

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

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

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 70% Online 20% Grassroots 5% Public Relations 5% Branding Online: website, blog, FB, Twitter, newsletter, SEO Grassroots: events, seminars, associations, sponsorships PR: press releases Branding: Paper ads, direct mail, mentions in press

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

45. EchoSign “ Online Electronic 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

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