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Planning For Your Practice/Business Transfer: A Win-Win For Everyone

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Who will take care of your clients when you retire? What quality of service will they receive should you no longer be there to provide it? While minding the details of day-to-day business, these questions may seem of little concern. Taking the time today to plan for your future transition, however, may be one of the most important things you can do for your clients in the long term. When you ensure the continuity of high-quality service, everyone – the buying agent, selling agent, agency manager and insurance company – wins.

In “Winning the War for the Wealthy: How Life Insurance Companies Can Dominate the Upscale Market,” Russ Alan Prince delves into a number of issues that must be addressed by companies that utilize the agency system and that have “elite” or “high-end” producers. One of these issues is the need for companies to develop a practice/business transfer process. Prudential, the company with which my affiliation has remained for nearly 4 decades, initiated such a process for its field force in 2000. A brief overview of my own practice transfer is an example of how a well-thought-out plan can ensure the most seamless transition possible.

Recruiting a successor

From the time I entered the insurance and financial services arena in 1970 as a 23-year-old agent to the day I opened my own financial planning practice in 1994, I’ve been associated with Prudential and have benefited greatly from this 36-year partnership. Due to the foresight and program implementation of the company’s past and present executives, I was able not only to develop a successful practice, but an equally successful practice transfer as well, one that would fulfill my primary obligation to my clients to assure they would be well cared for upon my retirement or the sudden onset of illness or disability.

I began planning for the sale of my practice 6 years before my goal of selling it at the age of 60. This allowed me ample time in which to recruit, mentor and support a successor to my practice. While I had hopes of 1 of my 4 children following in my footsteps, they chose their own paths, as children will and should. So I turned to a process that has always served me well throughout my career whenever I needed a producer: recruiting.

Upon meeting first-year associate Andy Laino, the intuition I’ve honed during my decades in management told me I had encountered someone I could mentor for the Million Dollar Round Table and who could be the successor who would purchase my practice. During our 6-year business relationship, Andy proved himself to me through his willingness to ask for and follow my advice, the obtainment of his CFP designation in 2003, and qualifying for MDRT in 2005. Today, he is on course to obtain his CLU designation in 2007. In addition, both Andy’s approach to the practice and his values parallel mine, which I believe is essential to the preservation of the valuable relationships I’ve built with clients and associates over the course of my career.

Our practice transfer took place when I was 59 years and 7 months old. The valuation method we used for my in-force business was a formula my company had purchased the rights to use from a CPA valuation firm. We followed the formula exactly, and even had a CPA Business Valuator verify its accuracy. He confirmed that he could not have valued my book of business any better and that we were right on the number. To ensure Andy and I were fair to one another in the process, we created a buy-sell agreement funded, of course, with life insurance. I am carrying the note on the sale using a published interest rate, over a 5-year period, and Andy is making monthly payments to me. My business plan calls for me to continue to assist in the transition of my clients for a period of 18 to 24 months.

Enlisting participation

A practice transfer and business transfer are 2 distinct processes. A practice transfer involves the selling of a sole practitioner practice. A sole producer owns the practice and all revenues in the practice are driven by him or her. The producer also may have 1 or more administrative assistants.

A business transfer involves the transfer of a business that has multiple types of associates driving revenue and, therefore, driving and increasing value. These various kinds of “value drivers” for the business may be defined as:

1.Associate Agents.

2.Formal Mentoring New Agent Programs (perhaps a future buyer of the practice) with revenue opportunities such as sharing of commissions, override payments and bonuses from the carrier.

3.CPA Alliance Relationships, sharing of revenue with licensed CPAs.

4.Bank Alliance Programs, sharing of revenue with small- to mid-size banks.

5.Marketing Assistants/Specialists, i.e., Property and Casualty, Long-Term Care, Life Insurance and Annuity Specialists.

6.Administrative Assistants.

When I began planning for my practice transfer, these various types of value driver opportunities did not exist. A business transfer with these relationships can, of course, have much greater value than a sole practitioner practice, depending on the in-force. The planning for either of these types of transfer, however, should begin with a written business plan starting a minimum of 5 years prior to the target transfer date.

In order to ensure a smooth transition process, the involvement of all parties is necessary, including the support of senior management and the support of the field office, led by the agency manager, and the home office transfer liaison. The agency manager is responsible for communicating to the senior agents the process and requirements of the particular company for practice/business transfer, fully supporting the process within the agency, assisting in recruiting, training and developing those to be mentored, and supporting the senior producer. The full participation and support of the team will result in a very positive impact on the recruiting objectives and retention for the agency as well. Again, a win-win outcome across the board.

Reaping the rewards

Yes, there is much work to do to affect a practice/business transfer, but the rewards are great:

oFor the experienced producer, an income increase while the prospect grows and develops through joint work, and perhaps overrides and/or bonuses from the carrier, as well as creating a supplemental retirement income stream for him or herself from the practice transfer once the date occurs.

oFor the potential buyer, the opportunity to learn from a mentor about the sales process, prospecting, case development, advanced marketing, and working with attorneys and CPAs, plus the best practice tips and, most importantly, client relationships for the future.

From the agency standpoint, such a process should have a positive impact on recruiting and retention while maintaining the in-force. From the company standpoint, the continuity of service by the buying agent will lead to better retention of in-force business, thus affecting profitability and, again, having a positive effect on recruiting and retention.

The most important perspective, of course, is that of the clients. To help them feel involved in and informed of the progress of my practice transfer, I sent each of them a letter to introduce them to Andy and assure them I would still be available should they need me.

Whatever your age, consider building your succession plan as you build your practice. Done properly and with foresight on your part, this process can truly be a win-win for your clients, your associates and yourself.


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