Succession planning is a topic that’s on everyone’s minds, but that no one wants to talk about. For busy producers, it’s a necessary burden, a process that will protect the firm they’ve worked so hard to grow, ensure their clients are well looked after and maximize the value of their book of business.
Of course, succession planning is very hard work. Gail Linn, a financial planner with MetLife, names succession planning as the biggest challenge she faces in her New York-based practice. Says Linn: “My clients rarely ask me about my retirement plans, but internally it is always top-of-mind for me, because I want to ensure that when I choose to start slowing down, my clients have someone that they will feel comfortable working with. Over the years, I’ve made many partnerships, but I haven’t found that ideal package [for a succession partner] yet.”
The challenge hit home on a larger scale looking at the results of National Underwriter’s recent Independent Producer Research Study, in which a monstrous 68 percent of respondents said they did not have a succession plan. Among this group, 27 percent of respondents said they had no plans to ever create a succession plan; 41 percent said they would ultimately create a plan but had not yet gotten around to it.
Here, we take a closer look at why that is — and why it’s in your best interest to follow in Linn’s footsteps and plan early and often for the future of your own firm.
1. You’ll be ahead of the curve.
Planning for a successor is a challenge that looks different for every producer. When National Underwriter asked the aforementioned 68 percent of advisors without a succession plan the big question – why don’t you have one? – responses ran the gamut:
- I do not plan to transition my book of business (44%)
- I am far from retirement and will deal with it later (25%)
- I have not identified a suitable successor (12%)
- I am unsure of how to proceed to create an exit plan (8%)
- I plan to put my business up for sale when I am ready (8%)
- I do not know how to place an accurate value on my book of business (3%)
Further, a sizeable 15 percent of advisors said they did not plan to create a succession plan until one year before retirement; another 28 percent said they would craft their plan three years before retiring. Given the challenges and complications that come along with transitioning your business — not to mention all the parties that may be involved — succession planning, in most cases, is not something that can be done in the span of a few months. Advisors who spend time on their succession plan will reap the benefits of a transition period that is not rushed and that offers a tailored solution for owners, employees and clients.
2. You’ll have time to find the best fit for your firm.
As it becomes less common for family businesses to pass from one generation to the next, transitioning your firm to a key employee or partner has become the favored form of succession planning. When National Underwriter asked producers that already had a succession plan in place what they planned to do, 45 percent said they would sell to a key employee or partner. In contrast, just 28 percent planned to transition to a family member, while 20 percent planned to sell to a known outside interest. A further 7 percent had finalized their plan but were still shopping for an outside buyer. Because there is no one-size-fits-all succession plan, it’s important to take the time to consider all of these options and find the one that is right for your firm.
3. The industry will thank you.
Succession planning is rarely discussed on a macro level, but it should be. Few other exercises mean as much for the future of the industry. Ronald Herrmann, executive vice president, distribution at Prudential, says this about the way today’s agents approach the future: “Financial professionals spend a great deal of their time focused on the financial futures of their clients. But many haven’t devoted enough time to thinking about transferring their practice when they retire. For any business owner, it’s important to plan ahead so the relationships needed for a smooth transition are in place. Proper succession planning is an essential step in helping the next generation of financial professionals establish themselves and help ensure future success for the life insurance industry.”