‘I failed the medical as an actuary when they found out that I had a personality’

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It’s a sunshine-and-showers day in Linlithgow, home of Alan Steel Asset Management, which recently announced that it has surpassed the £1 billion figure for funds under management.

The firm’s 69-year-old founder and namesake is in his office this morning, but will soon be heading across the road to Bar Leo for some Italian food and “a bit of red wine” with a client of the past 25 years.

It should be a merry affair, as Steel is set to deliver the news that his long-time patron has achieved an 18.4 per cent return on his pension fund during the past year. Steel credits much of this to the performance of “quality global businesses” during the past 12 months, which have generated solid returns on world stock markets.

What’s more, he is fairly bullish about future prospects, despite the prevailing doom and gloom of “economic uncertainty”.

“Our research tells us that this kind of global performance is likely to continue,” he says. “And domestically, we have a low chance of recession in the UK as a result of Brexit.

“This is contrarian stuff, but the fact is that quality is still coming through.”

Steel has certainly never been one to run with the crowd, having through the years taken on the likes of Equitable Life, the split-cap investment trust debacle and anything else deemed in need of being “put right”. Much of his inability to keep quiet about what he sees as unjust can be traced back to his upbringing in a large working-class family originally from Bo’ness.

He was the first of his family to go beyond secondary school, studying geography and maths at the University of Edinburgh. With no real thoughts or guidance on what to do thereafter, he joined Scottish Widows in 1969 as a trainee actuary.

“When I was graduating with a degree in geography, I realised that most of the people around me were either going to be teaching or drawing maps, neither of which appealed to me,” he explains. “But then somebody said to me that actuaries make a lot of money, so I decided to become an actuary.”

It was, however, a bad choice.

“I like to say that I failed the medical because they found out that I had a personality,” he says with only a hint of jest. “It was all about systems and processes, but I like people and I can actually talk to people, so I realised I was never going to make it as an actuary.”

By 1972 he had moved on to delivering training for broker consultants on behalf of Scottish Provident, and it was there that he had his first iconoclastic clash with the financial services industry.

In the course of designing his training, he was talking to “the actuary who spoke algebra” in the pensions department of Scottish Provident, who explained to him the long list of assumptions underpinning the funding of final salary pension schemes. After investigating further, Steel came to the conclusion that such schemes were doomed to ultimately fail.

“But I was told to keep quiet about it because a lot of Scottish Provident’s business at that time was based on people buying into final salary pension schemes,” he says.

Thinking of his own family, Steel resolved to “change the world and put things right” for ordinary people caught out by a financial system that does not necessarily look after their best interests. He decided to become an independent financial advisor (IFA), and joined Borders-based RM Leask Insurance in 1973. Two years later he set up his own firm in Linlithgow, where his family had moved when he was a young boy.

Some might think it an odd location, with both Edinburgh and Glasgow reasonably close to hand, but Steel isn’t really a city man. He describes himself as more of an “island person”, listing Ibiza, Florida’s Anna Maria and Arran among his favourite places to be. He’s also not long back from two weeks in Mahone Bay, Nova Scotia – “almost an island” – where he is a regular visitor.

From his financial enclave in West Lothian, Steel employs 42 people looking after about 3,000 clients. Roughly 60 per cent are based in Scotland and most of the remainder are from other parts of the UK, with a smattering hailing from Australia, the Channel Islands, Monaco and Spain.

They include a healthy dose of prominent names from the worlds of business and sport, but most who come to his firm are typical professionals with little public notoriety. Steel is particularly proud that the vast majority are referrals, which he regards as a sustainable business model and testament to the quality of service provided.

But regardless of their background or circumstances, Steel says his task remains the same.

“My job is to make sure that people don’t make stupid mistakes,” he says. “When things seem too good to be true, they probably are too good to be true.”

An early critic of with-profits plans – the investment funds run by insurance companies that pay bonuses based on the fund’s performance – Steel was the first to accuse Equitable Life of incompetence back in 1997. His claims, first published in The Scotsman, earned him threats of legal action from Equitable Life but were later proved justified after thousands had their life savings destroyed. Equitable Life was forced to close to new businesses in 2000.

Hard on the heels of that came the split-capital investment trust crisis, which lost investors hundreds of millions of pounds. Here again, the straight-talking Steel pulled no punches in his commentary.

He believes there is a better way of doing things, part of which is based on intel from the likes of US-based Ned Davis and other independent researchers who have no particular axe to grind. At the same time, Alan Steel Asset does not run any of its own funds, leaving it free to invest in the best asset classes currently available through what Steel describes as the firm’s “fantasy football team” of fund managers.

“The fantasy football team thing makes sense to our clients,” he explains. “They understand it, and it works.”

Being inquisitive is another important piece of the equation. An avid reader, Steel’s operational role within the firm is head of research and marketing, a position for which he is ideally suited.

“Oh, I am supposed to work three days a week, but I work five, because I love what I do,” says Steel, who has rebuffed numerous offers to sell out, though he has put in succession plans to pass the business on to the “next generation” of management within the firm.

“Curiosity is quite an important thing to have. Don’t take anyone’s word for it – go ask questions for yourself, go investigate it for yourself.”

This philosophy culminated in July in the firm surpassing the £1bn barrier for funds under management, making it one of Scotland’s biggest independent advisory firms. That growth has continued, with a further £40 million of new money coming in since mid-July.

“To us it is a remarkable bloody achievement, because a lot of our clients are older and more cautious in their investments, and a lot of them are also drawing income,” he says.

“We were really chuffed that day we did the numbers. We look at our KPIs [key performance indicators] every month, and funds under management is one of them, but I just had a funny feeling that we were there, and sure enough…”

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