Ask Me Anything: 12 Answers to Your Succession Planning Questions

January 14, 2019

Jeff and I have purchased two books of business within the last year and a half or so, and we've also planned out our personal succession plans. Retirement planning is something that's on our minds quite a bit, and we want to help you by answering as many tough questions as we can.

Our team has put together 12 common questions, and I'm going to do my best to answer these for you.

1. How do you know it's the right time to consider retiring from insurance?

It's different for everyone. It's a sure sign when your book starts going backwards. When you lose more than you bring in, it tells you you're losing the passion for it. You're not giving it the attention you did a few years back.

I know so many people who have no plans of retiring, and then something happens. You get sick, a family member passes away... whatever it might be. A bell just goes off. You realize you're ready to be done, and you can't get out quick enough.

It's weird. It's also different for everyone. I'm 59 and I think that as long as I feel like I'm being productive and am contributing, I want to keep working.

Another really common feeling is that technology is so overwhelming – particularly for most guys my age. We really don't like it. You feel like you just can't keep up.

If I didn't have all the great support from our staff to help me, I would want to get out a lot sooner. It can be overwhelming, and I can see a lot of guys my age feeling that way.

2. I plan on passing my insurance business to my kids. Is that a good or bad idea?

You know, this is what Jeff and I have planned to do, so I can't say it's a bad idea. Is it a scary idea? Yeah. Yeah, it is.

We're basically counting on our kids to fund our retirement. They don't have the money to buy the business outright, so we're trusting them to pay it off over time, which will act as our retirement. They're basically our bank.

So, that's one part of it. The other huge part is whether or not your kids are in the business.

If they're not, you can't just assume that they'll leave their career to take over your book. There's a lot that goes into this, like training and licensing.

Now, we can definitely help out with that by training your successor through our All-Star Program, but it's still a lot to consider, and that's why a lot of agents don't pass off to their kids.

3. What are most agents doing when it comes to a retirement plan?

Most agents aren't doing anything at all. I'm not sure if that comes as a surprise or not, but it's the reality of our industry.

The majority of agents just plan on letting their business fizzle out. They stop servicing their customers, and they just collect whatever money continues to come in on that book before it completely dies out.

As far as passing the business off to the kids, I'd just guess that only about 10% do that. A handful of agents sell their book, and the rest just let it die.

In fact, 56% of agents surveyed in our last report have no thought-out succession plan. You can read more about here:

State of the Senior Market Report

4. Why sell my book when I can let it fizzle out while still drawing an income from it?

It's terrible for you and it's terrible for your customers. There's no guarantee that another agent won't swoop in when they find out you're done trying. They'll pick off your clients until you have none left. That'll happen faster than we all probably think.

When you sell your book, it's a guarantee. No matter what happens to that book, you know you're going to be paid for it.

Agents who think doing nothing is better than selling their book likely haven't thought it through.

5. I don't even know where to begin – who buys an insurance business anyway?

A lot of companies buy a book of business and just let it run off. They find a guy in dire straits so to speak, they only pay him 1x, and then they just let the book run. They don't service it or try to grow it.

→ Learn more about how a book of business is valued.

Agents also buy them. If I'm a young guy and I know this is going to be my career, I'd be looking, because it's a great way to grow your business. In most cases, you don't have to buy the book as a lump sum. Most people want to be paid over time. And if it's someone who's local and has clients in your area, it's a beautiful fit.

FMOs also buy them. For example, we just bought two books within the last year and a half.

6. What are the advantages of selling my book of business to an FMO?

Buying your book is really in the best interest of your FMO, because they're making a small percentage on your business already, and they don't want to lose that business.

Advantages of selling your book of business to an FMO include:

  • Higher valuation – an FMO can afford to pay more for your book
  • Resources in place – an FMO has resources and staff in place to take great care of your clients
  • Proven track record – it's easier for your clients to trust an FMO because there's a proven track record there
  • Easier transition – your FMO already has great relationships with your carriers

Sell Your Book of Business to New Horizons

7. Is there a way for me to actually find out how much my book of business is worth?

It's so individualistic, and there are so many variables. Really, your book is worth what someone will give you for it.

If you're seriously interested in retiring, let us know. We'd be happy to sit down with you and run some numbers.

→ Learn more about selling your book to New Horizons

8. I see all kinds of numbers being thrown around online. What's a realistic and fair valuation for a book of business?

I'd encourage you to read It's Time to Sell Your Insurance Business: What's It Worth?

That article really goes into all the different variables, but for a short answer, insurance books are valued based on your annual gross commission. So, when someone says "My book was valued at 1.5x," they mean that their book is valued at 1.5x their annualized gross commission.

That multiple can range anywhere from 1x to as high as 2.5x or even a little higher depending on how you want to be paid for your book.

When you see something around that 1x mark, that's not a fair valuation. That's not someone who's going to take care of your clients and grow your book.

When you see a valuation on the higher side – 2-2.5x – we're talking about a solid block of business with loyal customers, and that agent is probably choosing to be paid over time or as-earned. You'll also see higher valuations coming from FMOs, because again, we can afford to pay more since we're also invested in your book of business.

9. I keep reading about CRMs and digital files... why is a CRM important when it comes to succession planning?

The first thing we did when we bought our first book of business was to go through all the client paperwork and add it into AgencyBloc.

If your client's information is in filing cabinets or a 3-ring binder, you know that's not the most efficient way to store client data. In order for us to be able to properly service those customers (contact them easily, run reports on them, etc.), we need their information stored digitally.

It's so advantageous to have your book of business in a CRM.

If all your client information is on paper, it will take a lot of staff time and effort to digitize it. Having that done already can increase the value of your book of business.

10. What happens if I die and never had a succession plan?

Most men die before their wives do, and most agents are men. You want to be sure that what you’ve worked for will pass on to your family – and you want a good valuation for your business. You don’t want to just lose it all.

Having a plan in place will ensure that all these years of hard work can be passed on to your loved ones.

11. What's the best way to be paid for your book of business?

There are 3 ways to be paid for your book, and there's no "best" way – it just depends on your needs and which payment structure makes sense for you.

Briefly, you can be paid via a lump sum, over time, or as-earned.

Here's a chart showing how these options compare:

Lump sum Over time As-earned
Lowest valuation Middle valuation Highest valuation
All your money up-front Your money is guaranteed Money is not guaranteed - need to trust the buyer
Risky for the buyer Risky for the buyer Not risky for the buyer

12. Why are you interested in buying books of business?

We want to keep growing, and we also want to conserve as much business as we can. We've had so much success with the ones we've bought that we want to keep going.

It doesn't matter if you're not ready to do it now. If in the next 2-3 years, you think you may be ready, let's just get comfortable now so that you have an idea for what to expect.

You don't want to be in a position where you have to sell now because you got a bad report from the doctor. You shouldn't have to deal with it then. You should be with your family doing what's important.

Most sales people are procrastinators – myself included. So I'd just encourage you to get ahead of this.

Sell Your Book of Business to New Horizons

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