Investment clubs can be huge fun. They bring together a group of people who are all interested in the stock market and prepared to pool their money, making modest contributions to a pot each month. Clubs hold regular get-togethers for members to meet socially and to share investment ideas; together, they decide which ideas to put their money into, hopefully building profitable portfolios over time.
John Calvert, who lives in Otley, near Leeds, has been a member of the Whitehouse investment club for more than 25 years. Members pay £50 a month into the club’s kitty and meet regularly to discuss which companies could be good investments, as well as when to sell existing portfolio holdings. Some members are veteran investors, but others came to the club having never bought a single share; sharing knowledge, advice and experience is part of the process. “It’s a real collective – a fellowship,” Calvert says.
Members celebrate portfolio winners together – as well as musing about failures and the ones that got away. Whitehouse was an early investor in AI microchip manufacturer Nvidia, for example, netting good profits. But Calvert bemoans missing out on Rolls-Royce, one of this year’s best UK stock market performers; one member was keen for the club to invest, but not everyone agreed. Still, while the goal is to pick winners, investment clubs have never just been about the money; they’ve brought people together to improve their understanding – and to have a good time.
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Unfortunately, however, running an investment club has got much harder over the years. From taxation changes that have cost some clubs dearly to increasing amounts of red tape at stockbroking firms, many investment club members complain that the joy has been sucked out of a hobby they used to love. In September, Interactive Investor delivered another blow, announcing it would no longer offer a specialist account for investment clubs; that means none of the big online investment platforms now provide clubs with dealing services. The decision is understandable – the costs of dealing are prohibitive due to financial regulation – but that has left many investment clubs high and dry.
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Tax is another headache for investment clubs
ShareSoc, the not-for-profit membership organisation that represents the rights of individual shareholders, is disappointed no other platform has been prepared to step into the breach. “We have been in contact with a major platform, encouraging them to provide an offering,” a spokesman says. “Regrettably, they have declined to do so”, due to the requirement for all club members under each account to be vetted annually for compliance with regulations to do with money laundering and “politically exposed persons”.
A number of stockbrokers do still offer investment club accounts, including Interactive Brokers, Pilling & Co, Redmayne Bentley and GHG Capital Markets. The latter firm has also promised to launch educational sessions for investment club members. However, charges at these brokers are typically much higher than investment clubs are used to. Small firms are unable to compete with the efficiencies of scale enjoyed by large investment platforms. Some clubs are worried higher dealing costs will make it uneconomic to continue. Such difficulties help explain why clubs are in decline. Two decades ago, there were around 12,000 clubs active in the UK; today, the figure is more like 2,000.
Tax is another headache. HM Revenue & Customs’ rules require investment clubs to secure a tax ID and to keep detailed records of all transactions, as well as the contributions and withdrawals made by each member. It’s a lot of work for the club treasurer, plus members then individually need to declare their share of the club’s investment income and capital gains; reductions in dividend and capital gains tax allowances in recent years make it more likely there will be a charge to pay. The club can’t set up its account within an individual savings account (ISA) or self-invested personal pension (SIPP), since these tax shelters are for individuals only
A promising alternative
It’s not all bad news. As investment club numbers have dwindled, membership of SIGnet, a national network of investor groups, has started to rise. There are now around 50 SIGnet groups across the UK, typically with ten to 15 members. As with investment clubs, SIGnet groups meet regularly, usually monthly, to discuss portfolio ideas and pool their knowledge; the big difference is that groups don’t invest collectively.
Instead, each member maintains their own account with a broker and decides for themselves whether to act on the views expressed at meetings. Some will invest more than others; some may not invest at all. “We get all the advantages of the investment-club approach, but none of the disadvantages,” explains Bill Fawkner-Corbett, who has run the SIGnet network for the past two and a half-years. “Members enjoy the social aspect of meetings, whether in-person or online, and a stimulating discussion that hopefully generates some good investment ideas, but they’re free to make their own decisions and trading arrangements.”
As individual investors, SIGnet’s members are free to open accounts with any broker they see fit – including the low-cost investment platforms that no longer offer investment-club accounts. They can also make investments inside ISAs and SIPPs, sheltering income and gains from tax. Calvert thinks these advantages will ensure SIGnet attracts more members. He’s already joined a local group and runs a course for peers who are new to investment. Still, he is also keen to keep Whitehouse going. “We’ve got to make a decision about what form the club should take,” he says. “We do want to continue because we’ve become a group of friends who invest together and there’s a danger that the club would just wither away if we only talked about investing – it’s a question of finding the best way to proceed.”
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