There is a big problem with fishing in Alaska. Sports fisherman and local, single line fishermen tend to fish for Salmon and Halibut which are hard to catch, premium value fish. Numbers of both are declining and so quotas have now been introduced with some days of the week, small boats having to stay in port.
The ridiculous situation is that the quota allowed to be caught for some of these fish is smaller than the actual amount caught and thrown away by the big trawler boats. On the face of it this seems like madness. If a large trawler is catching so many premium-value fish, why are they throwing them away? The answer is that the trawlers are after huge quantities of pollock which they can process quickly and ship to China as a cheap source of protein. Salmon and Halibut might be valuable but they are the wrong type of fish for these operations and are therefore a waste.
The issue is that a Trawler boat net doesn’t discriminate, it will catch everything above a certain size and a lot of it will be this bycatch which is then dumped. It is a hugely wasteful process as all bycatch has a high value, either economic or environmental.
This indiscriminate sweeping up was a problem we had at a previous employer of mine, but the catch was people not fish. The financial advice company charged people a percentage fee on the person’s investments and had no minimum portfolio size. It spent a lot on marketing and had high targets for its advisers in terms of the new money it wanted them to attract each year.
The net result of this approach was a profitable core business but with a huge tail of unprofitable clients to service. The unprofitable clients had smaller portfolios of sub-£100,000 and there were many more of them than there were of the profitable clients with portfolios above this level. Multiple attempts were made to make the servicing of this huge pool of clients cheaper, by repeatedly reducing service, but it was never successful. These poor clients had a huge turnover in the staff dealing with them, changes in proposition and charging.
The short-term solution would have been to release these clients to a firm that was set-up to look after smaller clients or to release them back to the wild to self-manage. Management would never countenance the loss of revenue though. The longer-term solution would have been to go upstream and stop these clients falling in the river in the first place.
Where Flat Fees fix this problem for clients and advice firms is that, built into that way of working is a natural filter. Flat fees work like a net with intelligent holes that reshape to fit the size and shape of the person that they are right for. A Flat Fee will naturally dictate who the service is too expensive for. In this way it is a better filter for the client who wants to be looked after by the firm that is right for them and the firm that wants to look after clients that are right for the firm.
The problem with a percentage fee is that any client represents potential income and so an adviser with an asset target or just with a desire to be helpful will always be tempted to take them on, regardless of whether they can service them profitably.