In a blow to investment clubs across the country, Interactive Investor has announced it will close their accounts next month. The provider was one of the few remaining major platforms to offer such facilities, and the move could signal the end of a once-thriving element of the UK’s investment community.
The Aberdeen Group-owned platform told account holders at the end of August that it had decided to stop hosting clubs after a strategic review, with a deadline of 27 October for accounts to be closed.
The decision has angered many investment clubs due to the way it was communicated and the proposed timeline for account closure.
Don Overton, president of the Chislehurst Rotary Investment Branch, said: “There have been no discussions with the clubs by Interactive Investor. The way that it has announced the closure and the very limited time it has given us to find alternatives for our account is, in our opinion, disgusting.”
Meanwhile, Roger Holden, chair of Navigators Investment Club, said: “I always look on Interactive Investor as the Ryanair of platforms: cheap and not the most friendly. This decision has come out of the blue.”
Interactive Investor has outlined four options for clubs: transferring the investment club portfolio to individual club members’ trading accounts on the platform; withdrawing the club’s assets and transferring them to a different provider; selling the assets; or donating them to charity via its ShareGift option.
Several investment club members told Investors’ Chronicle they felt the reasons given for the closure were insufficient.
“They’ve not said why. Is it anti-money-laundering legislation? Are we too much trouble? They didn’t give us a reason,” said Janet Jones, a member of the Pen-y-Ddraig Investment Club.
In response, Interactive Investor said it recognised the “disappointing” nature of the decision. “We have given good notice (double what is required) and the reasoning given to customers has been clear, with additional information on FAQs,” the platform said in a statement.
“We are also here, with our award-winning customer service team, to fully support customers with the closure process and help them with what they want to do next. We are here for them to make this as easy as possible whilst recognising this closure is disappointing for them.”
Investment clubs are social hubs where members catch up in person and discuss their shared holdings, with Investors’ Chronicle hearing from many members worried about losing that connection.
The platform points towards its online ii community, a social trading network, as an alternative option for investors looking to share investing ideas.
What now?
Unfortunately, the options are limited. Only a handful of platforms still offer investment club accounts, and most that do, such as Hargreaves Lansdown, are no longer open to new applicants.
Interactive Brokers hosts club accounts where a charter or constitution is provided along with a tax ID. This is in the form of an unincorporated account.
Anti-money-laundering considerations are often cited by platforms as a reason that they no longer offer such accounts, due to the additional admin required to comply.
However, following the news of Interactive Investor’s decision, some brokers have stated that they are willing to consider investment club applications.
Pilling & Co Stockbrokers has said it is open to hosting investment club accounts. However, the application process and costs are yet to be finalised.
Retail investor organisations are also applying pressure on platforms to reconsider their stances. Mark Bentley, director of ShareSoc, is meeting with one of the major platforms next week to discuss the barriers that platforms face to offering investment club dealing accounts.
Listen to our latest podcast for more on Interactive Investors’ decision
Potential workarounds
Some investment clubs are considering setting up as small private companies or LLPs to allow them to apply for company accounts instead of investment club accounts.
While some platforms may be willing to consider this, such a set-up is not simple. As company directors, investors will need to comply with company law.
“In practice, it can mean more admin than many investors expect,” said Charlotte Hill, partner in the financial services regulation and funds team at Charles Russell Speechlys.
“It is important to remember that the company is the legal owner of the investments, not the individuals, so members need to be clear about how shares in the company are allocated, and what happens if someone wants to leave. The flexibility of an investment club can be lost if the corporate machinery is not set up carefully.”
That said, investors should bear in mind that trying to run a club without an appropriate structure in place is fraught with difficulty.
“Without clear rules on ownership and decision-making, disputes are almost inevitable. There are also statutory pitfalls: if the arrangement starts to look like a collective investment scheme, it could fall within the scope of Financial Conduct Authority regulation, which is not designed for casual investor groups,” Hill added.
Beyond investment clubs
For investors looking to consider alternatives, one option is SIGnet, a national network of individual investor groups.
Most clubs follow a similar format in the sense that they hold regular meetings at which they review what members have bought and sold and discuss macro trends, often followed by a pub lunch. However, the main differentiator is that the clubs do not invest collectively.
Bill Fawkner-Corbett, head of SIGnet, says he would welcome individual members from investment clubs joining established SIGnet groups. Investment clubs that are interested in converting to a SIGnet group are also welcome.