The first meeting - roles and responsibilities

Investment clubs usually meet once a month, with proceedings structured in a similar way to a normal company meeting. There is also often a social part to meetings following the investment-related discussions. Our research indicates that many investment clubs consist of around 5 to 15 people. A group of this size means there is a sufficiently diverse range of viewpoints, while still providing every member with the chance to have their say.

Roles are allocated to members – book-keeping, stock research, placing orders with the club’s broker, keeping records of club meetings, and so on. No payment is involved for running or administering the club, so that members’ funds are allocated entirely to the club’s investments.

Who does what?

At your club’s first meeting you will need to elect members to certain roles. Club officers usually include:

It is customary for a member to hold one of these roles for 12 months. At your club’s annual general meeting, the position comes up for re-election. There is no payment involved for fulfilling these roles, so in most clubs it is expected that members will take their turn in one or more of the roles during the life of the club.

Chairperson

Meetings are run by the chair. Although most meetings are informal, it is important that they are run properly. Discussions should be relevant and the chair should exercise a sensitive but firm control. If meetings take too long or discussion is not focused, some members may lose interest.

The chair should ensure that some members do not dominate the meeting, and that all members get a chance to have their say. This is important from a legal perspective, as well as being in the interests of fairness. If some members do not actively participate in the decision-making process, then those members who do actively participate may be regarded as advising those who do not, and under current legislation would require an Australian Financial Services Licence (AFSL). The chair is also often nominated as one of the authorised signatories of cheques drawn on the club’s bank account.

Treasurer

The treasurer is responsible for keeping the financial records of the club. Prior to each meeting, the treasurer should prepare a report that includes, at a minimum:

  • The current value of each of the club’s investments together with a total value of such investments
  • A statement of unpaid accounts and cash in hand
  • The total value of the club’s assets and the current unit value

These reports are covered in more detail in Keeping Account.

The treasurer may wish to circulate this report ahead of the meeting. The advantage of having the report circulated in advance should be weighed against the desirability of having a report which is as up to date as possible. An account should be kept for each member showing the total investment made by the member by means of regular subscriptions and lump sum contributions; any withdrawals the member has made; the total number of units currently held by the member and the current value of the member’s holding.

The treasurer is also responsible for checking that members’ contributions are made each month, and for reconciling the club’s bank account. At first glance, the treasurer’s duties may seem onerous and better suited to a qualified accountant. In reality, the idea that running an investment club involves a vast amount of book-keeping is not the case. If records are updated on a regular basis, only a limited time is required each month.

Some clubs appoint an assistant treasurer each year, who then moves into the treasurer’s position after the year as assistant. This means that the treasurer (except for the initial appointee) will have a had a period observing how records are kept and reports compiled before taking responsibility for the role themselves.

Download accounting forms

Secretary

The secretary keeps track of decisions and is responsible for non-financial administrative duties. The secretary’s duties involve keeping up-to-date membership records, and copies of any documents that relate to the formation or operation of the club. Documents include the club’s constitution/partnership agreement, the signed agreement with the club’s broker, and the registration of the club’s business name.

The secretary will also maintain a file of CHESS statements of the club’s investments. The secretary is responsible for taking minutes at club meetings. Minutes should include a list of members in attendance, details of decisions taken at the meeting, and a concise summary of the discussions leading to those decisions. A copy of the minutes should be sent to members for review before the next meeting.

Broker liaison

We are aware that some clubs allow all members to place orders to buy or sell shares on behalf of the club. Our research, however, suggests that it may be best for one or two members of the club to be nominated as the officers authorised to place orders with the club’s stockbroker. These members are usually drawn from the three officers of the club, although this does not have to be the case.

If the club is structured as a partnership, then the trustee members in whose names shares are held are usually the members registered with the stockbroking firm to place orders. If the broker receives an instruction from any other club member, they would need to confirm the instruction with one of the trustees. Some stockbrokers may insist on written confirmation of instructions. If the club is structured as a company, a couple of directors would normally be appointed to give instructions to the broking firm. The broking firm will require written confirmation of the names of the directors who will be placing orders.

Most investment clubs tend to be buy-and-hold investors rather than short-term traders. Clubs with this longer-term approach usually make investment decisions at their monthly meeting and the nominated members then place the appropriate orders with the club’s broker. They would not expect to do a lot of trading between meetings. Having said that, circumstances do change and action may need to be taken between meetings. For these situations it is important to have communication arrangements in place so that an investment decision can be made without having to wait until the next club meeting. At a minimum, all members should have a phone or email contact list for other members. For more information, please refer to what happens between meetings.

Next topic: Setting it up - legal structure and costs