How is Interlake Capital Management, LLC,
licensed or registered?
Interlake is licensed to provide investment advisory services by the
State of Wisconsin, and can do business in all 50 states. You will
find extensive information about Interlake’s business practices
and personnel in the brochure version of the firm’s Form ADV
Part II.
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Will Interlake have custody of my assets? Will the assets
in my Interlake accounts be safe and/or insured?
Interlake will not take physical or electronic custody of your
assets. Instead, they will be held at TD Ameritrade Institutional,
which serves as the clearing broker for Interlake's trades. TD
Ameritrade is insured by the Securities Investor Protection Corporation
(SIPC). Please see the SIPC’s
website for more information.
All account assets will be held in your name or in the name of
entities you have created, such as trusts or retirement plans.
Neither Interlake nor TD Ameritrade can access or distribute funds
from your accounts without your knowledge and permission.
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Do you offer financial planning, tax, or legal services?
We do not offer tax or legal services. We would be happy to offer
recommendations to clients seeking professional help in those fields.
As a highly specialized money manager, Interlake is not, strictly
speaking, a financial planning firm. Inevitably, however, and for
very good reason, we make every possible effort to understand our
clients’ financial circumstances, objectives, time horizons,
and investment preferences. Our personalized process recognizes the
uniqueness of each client relationship, and nothing is more important
to us than helping you achieve your personal and financial goals.
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Does Interlake receive commissions or other forms of compensation
from brokerage firms, mutual fund companies, or other third parties?
None at all. As a fee-only firm, Interlake receives compensation
exclusively from its clients. As a result, our advice is fully independent
and objective. We make portfolio management decisions purely on the
investment merits as we perceive them.
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What are the most important differences between your Allocation
Portfolios and your Alpha Portfolios?
Interlake’s Allocation Portfolios offer a low-cost, tax-efficient,
highly-diversified, index-based solution suitable for nearly any
client. Interlake’s Alpha Portfolios offer an active, contrarian,
relatively-concentrated, occasionally-hedged complement to our Allocation
Portfolios. Our Alpha fees are a little higher than our Allocation
fees, but they’re still below the industry norm, and our separately
managed accounts are totally free of all the ugly, entangling expenses
that plague many mutual funds (e.g., sales loads, sub-advisor costs,
and, in too many cases, truly unconscionable 12b-1 fees).
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Why are fees for your Alpha Portfolios higher than fees
for your Allocation Portfolios?
Our Alpha discipline is more labor-intensive than our Allocation
program. It’s as simple as that.
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If Interlake’s Allocation Portfolios are so compelling,
and so inexpensive, why might I want to participate in the Alpha
Portfolios?
Our Allocation Portfolios help clients diversify across and within
asset classes using inexpensive, tax-efficient, index-based exchange-traded
funds (ETFs). Our Alpha Portfolios provide another layer of diversification—between
passive and active management. We believe that this approach, sometimes
referred to as a core-satellite strategy, provides clients with an
institutional-quality mix of tactical and strategic investment programs.
As academic research has long shown, most active managers underperform
their benchmarks after fees and taxes. To outperform, we believe
investors should seek managers who offer exactly what Interlake offers:
an active discipline that’s agile, eclectic, contrarian, and
relatively concentrated (as opposed to bloated, style-constrained,
momentum-chasing, and highly diversified). For more information on
our active discipline, please see our main Alpha
Portfolios page.
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I’d like to participate in both programs, but I’m
not sure how I should split my assets between them. Do you recommend
a specific weighting between your Alpha and Allocation disciplines?
In short, no, but we certainly will help you understand each discipline,
and how they fit together, as clearly as possible. The appropriate
mix of our two programs is a subjective function of several factors:
Your risk tolerance, time horizons, and investment objectives; the
size of your accounts; the nature of any other holdings; and your
personal investment philosophy and experience. We do not promote
one approach over the other. Instead, we explain the risks, principles,
and merits of each discipline in order to help you make an informed
decision.
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Your Allocation Portfolios use index-based exchange-traded
funds (ETFs). Which asset classes can I participate in using ETFs?
Most liquid asset classes are now represented by multiple ETFs, which
enables us to choose the optimal vehicles for our clients on the
basis of expenses, liquidity, tracking error, and other considerations.
In larger accounts, we may use individual bonds rather than fixed-income
ETFs. We do this to reduce the (already low) costs our clients pay
and to enhance our flexibility and precision in managing fixed-income
positions.
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Do you have account or household minimums?
Rather than impose arbitrary asset minimums, we have established
minimum annual fees: $1,000 for the Interlake Allocation Portfolios
and $2,500 for the Interlake Alpha Portfolios. Due to attractive
economies of scale in our Allocation Portfolios, we have capped
the annual fee for that discipline at $10,000 per household.
Generally, we recommend account minimums of roughly $50,000 for
our Allocation Portfolios and $150,000 for our Alpha Portfolios.
As part of a total household relationship, we can and will help with
smaller accounts, but you should be aware that especially small accounts
can limit the flexibility and efficiency of our investment programs.
We are happy to discuss the constraints of small accounts on a case-by-case
basis.
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Why are fees capped at $10,000 annually for Interlake’s
Allocation Portfolios?
We believe that a semi-passive, index-based program makes great sense
for most investors, from those with modest accounts to those with
the largest estates. In most cases, a financial professional can
provide indispensable guidance, discipline, and insurance against
the emotional decision-making that can quickly tip a portfolio out
of balance, expose investors to too much (or too little) risk, and
inflict lasting damage on returns. Beyond a certain point, however,
the time and technical expertise required to provide this service
is not directly proportional to assets under management. To put it
simply, a $10 million Allocation Portfolio does not require five
times the time, effort, or expertise needed to manage a $2 million
account. This is why we cap our Allocation fees at $10,000 per year
per household. The most important reason to do business with Interlake
is the exceptional quality of the firm’s investment disciplines.
We hope our fair, transparent, intelligent fee structure also encourages
you to work with us, and we hope it reflects our high regard for
clients’ hard-earned assets.
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Your fees are reasonable, but if you simply buy and hold
index funds in your Allocation Portfolios, why should I pay anything
at all for that? Can’t I do the same thing on my own?
First, it’s important to note that our Allocation Portfolios
do not employ a purely passive, buy-and-hold approach. By identifying
best-in-class investment vehicles, rebalancing intelligently, harvesting
tax-losses where appropriate, and minimizing the role of emotion,
Interlake’s approach adds meaningful value within the framework
of strategic asset allocation.
Can you do the same thing on your own? Maybe. Given what we’ve
learned from leading scholars of behavioral finance, however, it’s
exceedingly unlikely that you will.
In managing their own programs, individual investors face several
challenges, the most important of which aren’t technical or
intellectual. They’re behavioral and emotional. The problem
isn’t that investors are insufficiently bright; it’s
that they’re insufficiently robotic! Because we’re human,
we tend to become euphoric and chase momentum in bull markets (thus
over-exposing our portfolios to risk) and become despondent and bail
out in bear markets (thus under-exposing our portfolios to risk).
That’s a recipe for an unhelpful combination: buying high and
selling low. It’s also difficult for investors to maintain
an appropriate middle ground between confidence and humility, which
is a necessary foundation for prudent investment management.
The literature on behavioral finance, which emphasizes the effects
of human cognition and emotion on financial decision-making, is not
only extensive and fascinating; it also provides a solid foundation
for Interlake’s philosophical and practical approach to money
management.
For more on the value of working with Interlake, please see “The
Logic of Paying for Good Professional Help.” For more on the
insights of behavioral finance, please see our Suggested
Reading page. And for additional information on our index-based discipline,
including a discussion of our Intelligent Rebalancing program, please
see our main Allocation
Portfolios page.
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I like what I’ve seen and I’m ready to explore
a relationship with Interlake in more detail. How do I get started?
The first thing you should do is call or write so we can discuss
your circumstances and objectives. As part of our fiduciary responsibility
to our clients, we conduct a thorough profiling process before initiating
a new relationship. For more on the account-opening process, please
see our Getting Started page.
You may also express your interest in our firm through our Contact
Interlake page.
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I have an advisory relationship at another financial institution,
but I like what I’ve learned about Interlake. Will it be
a hassle for me to transfer my accounts to your firm?
Not at all. With the assistance of our custodial partner, the transfer
of your assets to Interlake will be quick and easy. You’ll
need to sign our investment management contract, an agreement with
TD Ameritrade, and any applicable account transfer forms. Generally,
you can then submit those documents to us in person, by postal mail,
or by facsimile. We accept most client communications by e-mail,
but these contractual account-opening documents are exceptions to
that rule. In addition, we strongly recommend submitting originals
of any account transfer forms, which we will provide to you.
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I’d like to participate in Interlake’s investment
programs, but I value my relationship with another financial professional.
Can I have you manage some of my assets without abandoning my current
advisory relationship?
Of course, in one of two ways. First, ask your current advisor to
contact Interlake. We might be able to offer Interlake’s Alpha
Portfolios through his or her platform. Second, you can split your
assets between firms, thus maintaining your existing relationship
and participating in Interlake’s institutional-quality programs.
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You describe your fees as “marginal.” What does
that mean?
It simply means that the fee indicated for assets in each range apply
to assets in that range only, with a lower fee applied to any assets
over each threshold. To take one example, a household with $1.5 million
in assets in our Alpha Portfolios would pay 1.5% per year on the
first $250,000, 1.25% on the next $750,000, and 1.00% on the next
$500,000. For Interlake’s Allocation Portfolios, fees are capped
at $10,000 annually. For more detailed information on Interlake’s
fee structure, please see our Fees page.
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Why do you use Exchange-Traded Funds (ETFs) instead of mutual
funds in your Allocation Portfolios?
This is simple: They’re less expensive, more tax-efficient,
more transparent, fully invested, and more flexible.
The only circumstance in which we might recommend open-end mutual
funds over ETFs is when someone makes regular, modest contributions
as part of a dollar-cost-averaging program. In that instance, the
investor may want to avoid the per-trade brokerage commissions required
to purchase ETFs.
Above all, we would never recommend a mutual fund with a sales load.
Why? In part because we would never buy one ourselves! Loads are
outrageously expensive and they create all sorts of perverse incentives
and constraints.
For the broker, the incentive is clear: Peddle funds with generous
loads rather than less-expensive but otherwise equivalent alternatives.
For the investor, the effect of buying a load fund can be truly
ridiculous. Imagine you want out of a particularly mediocre fund,
but you just paid more than 5 percent to buy its “A shares” a
few months ago. You decide to stick with it, not on the merits of
the fund, but because you feel handcuffed by the sales charge you’ve
already paid! You don’t need that problem, and you’ll
never face it at Interlake.
For more information on our use of ETFs, please see our Allocation
Portfolios page.
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