Alan Steel, scourge of Equitable Life, split cap salesmen and the commission-hungry, has paused in one of the few moments during a 90-minute interview with Wealth Manager in which the conversation is not working double time to keep up with his train of thought.
‘I don’t relish a fight, no,’ he concludes eventually, and quietly. ‘I don’t go looking for a fight. But if I see something wrong I am not going to keep quiet about it.’
Some of those who have found themselves facing him in the opposing corner might have grounds to dispute that of course, and certainly Howard Davies, head of the FSA through the split cap crisis, felt sufficiently bruised by the experience that he refused to be in the same room as him.
Steel is much more than an indiscriminate bruiser, however: the fights he has picked have ultimately seen him vindicated on the right side of history and the law – from the high profile scandals to his more implicit rejection of the churning that was the rule in financial advice through much of his career.
But he continues to hold large swathes of the financial services industry, and those appointed to regulate them, in fairly low regard. He adds it would be naïve to expect much substantial change to the undercurrent of sharp practices in financial distribution as a result of the retail distribution review (RDR).
‘I find mis-selling f**king despicable,’ he says. ‘There has been this culture of salesmanship – being a bit of a lad – [that] has been rewarded for far too long. In law, the law of agency, I am the agent of my client. My primary responsibility is to the client: that is the letter of the law.
‘A bank adviser is the agent of the bank, and it’s same for all these organisations, Allied Dunbar, Abbey Life, why should clients be stuck getting ripped off by them? IFAs knew what was going on with all these companies, so why did they place business with them? They should have put them out of business.’
Steel puts equal moral responsibility on the authorities for their failure to get to grips with the reality of distorted incentivisation however, and says they have demonstrated a selective blind eye.
‘It’s the easiest thing in the world to falsify a [client] report. It’s hard to evade random checks on what clients are actually being told when they are in an initial meeting.
‘If you wanted to stop mis-selling it would be easy: cut a 17-page disclosure document down to one page and back it up with random secret shoppers checking what the adviser is saying, and whether they are telling people in advance thousands of pounds of commission is coming out of their pocket.
‘A lot of IFAs are at it. Most people who go to an adviser have a Sipp and just want the ability to buy and hold funds. If you arrange a Sipp or a trust through an IFA they will tell you about the 1% charge on the Sipp, but they won’t tell you about the 5% you are paying on the £50,000 you put in it.
‘It’s just wholesale fraud. A lot of my staff will go to conferences and people will come up to them and say “can you no get him to shut up? He’s ruining my business”.’
It’s somewhat exhausting, being on the receiving end of a torrent of righteous anger, delivered at a fair pace in the slightly incongruously solid setting of London’s Caledonian Club. But it’s also invigorating, and in its uncompromising moral rectitude, bracingly direct where too often the City can be evasive.
As much as his business is geographically distant from the Square Mile in the West Lothian town of Lithingow, so Steel’s roots are very different from many of his peers at the upper end of the advisory sector.
Alan Steel Investment Management was founded in 1974, now running £700 million with the reasonable expectation that this will hit £1 billion within the next three years. While the asset base is climbing, the client base is being consolidated from a current historical, paper figure of 2,000 to the point where the company’s 10 principal advisers should have well under 100 relationships each.
The company’s asset base delivers an annual income of around £4 million, 70% recurring. Steel notes that he could easily ‘sweat’ this and run a profit margin of close on 25% but tax incentives put more emphasis on ploughing capital back into the business – for instance, commissioning regular research projects from pollster British Population Survey.
Steel himself was born in the small town of Bo’ness into a large working class family. The first of his family to enter university, he credits his drive to his mother, who worked in a solicitors’ office, and always regretted having to leave school at the age of 14.
He studied geography and maths at the University of Edinburgh and with little in the way of immediate family role models on how to select and advance a career, opted for one of the least likely and inappropriate choices available to him, entering actuarial training with Scottish Widow in 1969.
‘I hated it,’ he says now. ‘Being an actuary is all about systems and numbers and processes, whereas what I enjoy is people. Put the average actuary in front of a person and they don’t know what to do. Then they found out that I had a personality.’
By 1972 he had transferred to designing and delivering training for broker consultants, followed by a period of working at an advisory just long enough to see for himself how it worked before he launched his own business.
‘Having been an actuary, I was one of the only people [in the sector] who could actually see how products had been designed. It was an act of blind faith really: someone had said to me, if you had a guarantee whatever you tried wouldn’t fail, what would you do? It’s that fear of failure that holds people back.’
That sense of optimism is something that he comes back to several times during the interview, and is obviously central to his determination to aggressively highlight malfeasance: there is little point in spending one’s time and energy doing so if you don’t believe it’s possible to build a better way of doing things.
Having begun to build a recurring income-based model in the early 1980s as a way to avoid constant sales pressure and churn, he began his public career as a consumer champion – not a phrase he uses himself – when clients began talking to him about Equitable Life pledges in the mid-1990s.
‘They were saying all these things like we don’t pay commission so we pay it to you, when it was obvious the whole with-profits model was running on empty. It was like an upturned pyramid,’ he says.
‘I had clients who were coming to me asking me why they shouldn’t invest, so I thought f**k it, and wrote an article, which was picked up by Prestridge [Jeff, now finance editor of the Mail on Sunday].
‘They issued me with a writ, and I hired myself an expensive lawyer. What were the FSA doing? This was a company that had comprehensively miss-sold at every level. The split cap issue was another. I acted after someone at Aberdeen described them as “investment Volvos”. We took a look and found that there was a whole ring of different managers all buying stakes in each other’s funds.
‘All our research shows that banks are [still] mis-selling. Why don’t they shut that down? Could it be a coincidence that almost everyone at the top levels of the FSA has come from the banking system?’
The same optimism is evident in his investment methodology. Having written very publically that he did not believe the equity rally would be sustainable, he is now relentlessly advocating getting back into the market.
‘Our minds are not designed to deal with a reasoned calculation of risk’ he says. ‘They evolved 300,000 years ago on the savannah to run away from sabre-tooth tigers, its fight or flight. It’s something that doesn’t deal well with constant headlines and stimulus and panic.’
Steel is currently close to finishing a consumer guide to negotiating the ‘sharks’ of the financial service industry, which he intends to initially publish on Kindle during the autumn.
‘It’s about my experience over 40 years as an adviser, how to build a strategy and set your own goals. I have come to the conclusion that if you are relying on the regulator you might as well forget it. If you are relying on the media – no offence – you may as well forget it.
‘You have to build this for yourself. But it’s also a how-to guide. I came across research from the US that suggested only 4% of people in retirement felt they had done enough while they could to build up their retirement income. That’s one in every 25 retirees. So I hope it will help to reduce that number however I can, or at least ensure that people can make sure they are on the right side of that 4%.’