‘I’m a natural contrarian,’ says Alan Steel, chairman of Alan Steel Asset Management in Edinburgh. I think it is a reasonable assessment, writes Ian Horne.
Whether you are one of the ‘evidence-based investors’ Steel often critiques, or the owner of a large IFA firm, it is unlikely you will disagree either. Steel currently runs over £1 billion in assets under management (AUM), and true to his word, he has done it his way.
My way or the highway
For IFAs looking to compete with the big boys, there are a few obvious routes. Mergers, acquisitions, and high profile hires all spring to mind. For Steel, it has been a case of ‘none of the above’, as he has passed the billion pound mark organically with little-to-no interest in taking on advisers or businesses that did not match the culture of his firm. I should note that this practically rules out everyone.
He has a fitting surname, as he was the only full-time member of staff when he set up the firm in 1975, relying on a rented desk and telephone. At the time, the surprise for others was that he was setting up on the outskirts of Edinburgh, in Linlithgow: a quaint and historic town but hardly the financial hub of Scotland.
‘It was regarded as a financial graveyard at the time,’ he says. ‘People thought I was mad. They said I’d never make it.’
Steel argues small town life has been crucial to his success. ‘In Bo’ness [where Steel grew up] we were very poor, but when you went to all the local shops, the butchers and bakers and so on, they knew the families,’ he says. ‘That’s the ethos of Alan Steel Asset Management. You don’t let anybody down because they’re friends and clients, and you’ve known them a long time.’
Steel points out the firm’s five-word ‘DNA’: the words he wants his clients, staff and suppliers to use when describing the business. His selections are knowledge, integrity, innovation, fairness and fun. ‘Everybody in this place knows the importance of these five words,’ he says.
Attitude and culture are all well and good, but there is more to the Alan Steel story. His office is full of financial literature. He reads for over 30 hours in a typical week. As we chat about the firm, he glances over to a two-inch thick file, which contains all of his research for that month alone. This desire to learn has been at the heart of his business, along with an investment proposition that takes advice from investment research group Ned Davis Research, and an educated commitment to active funds.
‘People say you can’t tell what’s happening next, so you just have to be passive,’ he says.
‘And I would say [investment fund manager] Anthony Bolton does: he knows what’s happening next, and it’s not luck that he keeps doing it. [Fund manager] Neil Woodford: this is not luck. [American business magnate] Warren Buffett. What are these guys doing?’
Steel goes further, displaying his contrarian streak with a brutal critique of the increasingly popular exchange-traded funds (ETF).
‘They should be called emotional trading failures,’ he says. ‘They rush from one end of the bath to the other, and they are dangerous in the wrong hands. One day it will go belly up.’
Man on a mission
The story of Alan Steel Asset Management is straightforward in some respects, but I am at a loss to describe every key component on one page. A snapshot assessment is that the firm has become one of the UK’s finest through sheer dedication, commitment to studying, and a consistent client-centric approach. Steel’s character remains a huge influence on this proposition, and it is clear his firm’s commitment to the local community runs in his blood.
What lessons can IFAs take from Steel’s example? You can do big things if you are in it for the long haul with no interest in shortcuts: that, and do not always believe what you are told.