In my last article, "Happiness is a diversified portfolio", I mentioned an incident at the TMF Staff investment Club whereby the Chairman Rob Davies (TMF Essex) had decided to resign from the club.

Within a week of this I received a telephone call from one of the original H&G members who broke the extremely sad news that he was tending his resignation from the Club. Not for any differences of opinion, or personality clashes, or even because he wasn't enjoying it any more. It was just that for him he felt it had run its course, and he would like to "take the money and run", so to speak. Fine -- it happens. No problem. We have a substantial waiting list, so filling the empty slot was easy.

However, the departing member had a holding very close to £3000, and we don't hold that amount of cash. We therefore had to sell some stock to pay him off. That was the hard bit.

The whole episode prompted this article, which is all about how to deal with a departing member.

For my mind, this is where membership of ProShare and the purchase of the COW2000 Investment Club software has proved to be one of our best investments. Why? Well, as Treasurer, it would have been my job to have calculated all the unit values every month as well as calculating the selling back to the club of the departing members units. I have a day job! This takes time I can ill afford! No -- let the computer take the strain and the procedure for paying off a departing member is really simple. You can even sell units back at a unit price different to the current months value. Really easy.

Joining ProShare was great because specimen rules and a constitution are all printed up in their manual. Now money can cause problems between even the best of friends, and it is in this sort of situation, like a member leaving, that clear and concise procedures are called for. With all credit and acknowledgement to ProShare, I would like to quote (directly from their manual) the rules regarding a member leaving the club;

"11. MEMBER LEAVING THE CLUB

a) Resignations of membership must be submitted in writing to the chairperson, treasurer or secretary not less than seven days before the monthly meeting at which the resignation is to take effect.

b) Members leaving the club, whether by resignation or as the result of termination of membership under Rule 6, shall sell back to the club their entire holding of units.

c) The amount to be paid to a member leaving the club shall be calculated by multiplying the total number of units held by the member by the unit value declared by the treasurer at the club meeting at which the resignation became effective, subject to deduction of club brokerage if such should be in force at that time and any legal fees incurred by the club in connection with the withdrawal of the member. Any surplus cash held to the members credit will be added.

d) Payment to the member who has left the club shall be made as soon as possible and in any case within 90 days of the resignation becoming effective."

I won't elaborate on the referred to Rule 6; you'll just have to buy the manual. But be honest -- a club setting their own rules would not have come up with anything so concise and, even though some of you may think they appear a bit strict and stiff, if all the members know the rules then everyone will be aware of the constraints and time limits applied. That leaves less scope for arguments and disagreements.

The 90 day rule in d) is a good one: it allows the club to delay selling stock for up to possibly 2 months after the resignation, thereby being able to watch the portfolio to see if any candidates show themselves for sale, or even to "save up" the monthly subs to help ease the burden.

As previously mentioned, in H&G's recent instance, deciding what to sell was really tough. We had already pruned and pared our portfolio earlier in the year. Still, after a lot of discussion, the axe eventually fell on Lloyds TSB (LSE: LLOY), if only for the reasons that it was one of the few stocks in which we held enough to cover the payment, and we wanted to sell the others even less.

Never mind, members come and members go, and every so often someone will leave the club for whatever reason. I hope this helps Club Treasurers if they are a bit stuck over the correct procedure.

Related Links
• TMF Essex resigns
• Proshare website

Resources
• Investment Clubs discussion board
• The Fool's Guide to Investment Clubs
• Fool Books -- The Fool's Guide to Investment Clubs, by Mark Goodson

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