SUCCESSION PLANNING IN THE LIFE INSURANCE INDUSTRY

Here are some views.

An advisor posed his concerns.

A reply follows.


Hello,

"Well, this is a problem that has puzzled many of us over the years and as the aging group of sales folks keeps getting older the question becomes more difficult for many of us to answer.


From my point of view I guess the mistake we may make is over estimating the value that we place on our business OR the fact that the person looking to take us out doesn't appreciate the value of what they are getting.


I hear the numbers of 1, 2 or 3 times renewals or trailers talked about a lot and for that kind of money I almost feel I would rather let the business run off the books then give it away.


Assume I would be making $100K a year. If I would get the maximum amount of 3X that is 300K, all of which may be taxable in the year I receive it. Of course, there may be some ways to minimize that such as having a corporation receive the money but I am no tax lawyer or account so I would leave that to them. To me I am just not seeing the value in that proposition and that is why I am suggesting that it might be more financially rewarding to just let the business run off the books.


Perhaps nobody would admit they might do that but it is something I think a lot of us think about.


Of course, assuming we are insurable we could get some associates to take some life insurance out on us for far more than that and when we die, the reward would be paid out. But who might want to wait for that day. My mother will be 101 this year. Will my wife have to wait that long to receive the money? I am sure she hopes not:)!!!!


In any event, I would also be happy for some advice.


Even some of my clients who have been with me for over 30 years as asking when I am planning to pack it in, but as in my father's case; he died with his boots on. He worked despite his illness until a month before he passed away.


If he can do it, why can't I?


Looking forward to some interesting chat around this subject."


Here is one advisor's views.
 

"Thank you for your very thoughtfully presented views which I share.


Here are 2 of my own for your consideration.


Firstly, how do you invite a young life insurance agent/advisor into a business for 30 - 40 years that cannot be sold for more than 1 to 3 times revenue. It takes $2,000,000 to generate $1,000,000 of income - $300,000 is absurd.


Secondly, our business is premised on trust relationships. Your longtime clients have a very personal bond with you. That bond is not simply transferable to a new successor at any price. It must be earned - over time.

In our family a young family member was groomed for succession over a 34 year period.


Our responsibility in our financial advisory role with our clients is fiduciary in nature - in my opinion.


The regulatory bodies in Canada and the US are moving in that direction.


The disconnect is that we are in a highly transactional industry controlled by 'manufacturers' of products. That applies to the entire spectrum of financial services - not simply the life sector.


The Enrons, Wall Street and others have highlighted the urgency of Raising The Bar from commodity sales to professional practice.


It will take time for this cultural shift to mature.


In our family's case the senior member of our family died with his 'boots on' at age 92.


I have never seen this business model as professionally effective.


I hope these thoughts and views are helpful".


Dan Zwicker
Toronto.