Succession

Succession is a huge issue facing our industry, not only for advisors selling a block but also for buyers looking to purchase one. Like any problem it also represents a great opportunity, no matter what side of the of deal you are on, provided you can navigate the challenges.

In this article we explore: ways to increase the value of your block and analyze a block for opportunity, if you are buying selling our building your block of business this article has something for everyone.

Advisors today can leverage technology to analyze and service their existing block as well as one they acquire will not only add value when they in turn have to sell their block, they will gain more visibility into the one they are buying.

Building Your Block

You may not be thinking about succession for the immediate future, but you should be. Shockingly 90% of advisors do not have a succession plan in place unsurprisingly many advisors feel guilty about this. Having someone in place to purchase your BOB when you exit the business is not only going to maximize the equity you have built up in your practice but it's also going to ensure your clients have a qualified professional to turn to when you are no longer there to answer their financial questions.

Finding a partner to succeed your business can be challenging (like any relationship) however there are a few key steps we can take to add value to our block of business to make it more attractive to a potential acquirer in the future. Transparency, Organization and consistency add value to any book you are going to successfully transition.

Carve a Workflow

Process, process, process ... We have all heard that "consistency breeds success". The same is true when building your block of business. If you have a documented regiment or process of how you work with every client it makes it much easier for a new advisors to come in and pick up where you left off. Not only does having a process make you a more efficient advisor it also makes your block more valuable because there is less compliance risk associated with it. Ensure the following elements are documented as part of your workflow on every case to maximize the value of your BOB:

1. Advisor Disclosure
2. Needs Analysis
3. Product Suitability
4. Reason Why Letter

Ensuring all these elements are present in every case you do today not only ensures you deliver the best possible service to your client while you are building the block but it also offers protection for the advisor who acquires your block. A documented repeatable compliance posture can significantly increase the value of your business increasing the resale value.

Frequently Revisit Client Opportunities

Far too often I hear that advisors are embarrassed to go back to their clients because it has been so long (sometimes 10 years) since they may have purchased or given thought to their life insurance. This only gets more awkward for the advisor you sell the block to. Frequently revisiting clients with their exchange or conversion options is a great way to advocate for the best interests of your clients but it also keeps the dialogue going and will make your book more valuable if the next advisor can see what options you have presented your client along the way complete with client notes. Nobody wants to acquire a set it and forget it BOB.

Save Everything

Its not what you know it's what you can prove. No this is not a commercial for law and order, it's a reality. Today if someone is buying your book of business its not all about what you say its worth or the great work you say you did with your client. It's about what you can prove and how you back up that proof. In addition to some of the compliance elements above advisors also need a system to keep records for:

1. Client Notes - Time Stamped
2. Emails
3. Document Storage - (LDA has document storage built into every case! Hosted Securely in Canada)

Selling Your Block of Business

Show your work

All that hard work you did building your block has paid off, when it comes time to sell your block you want to have your ducks in order and be able to easily show any prospective buyer, how many policies you have (from what carriers), What type of policies you have (Term, UL, Whole Life, CI, DI). How many of the term policies are near their renewal. Even how many are past their renewal point. Easily being able to run analysis on your BOB might be the single biggest factor in increasing the multiple you will receive. Many BOB transactions are done partially blind so the more documentation you can provide the more comfort your buyer has and the higher multiple you can receive.

Find the right buyer

This is a sellers market many advisors are nearing retirement but not quite ready to leave the business, and while there are many ambitious younger advisors out there with their fishing pole they may not always be using the right bait. Because many advisors thrive from referrals our block often contains our friends and family, it's not just about finding the highest multiple but also someone who will care for the best interests of your clients, like you yourself would. You may work in a niche market that requires a special skill set or knowledge base. Finding the right advisor is as important as finding the right multiple when selling your block of business.

Passing off your baby

When it comes time to officially hand over the keys to the castle, make sure you make a plan in place and be sure to include things like succession of technology. It doesn't matter if an advisor kept great records if they cant pass that work off to you. With LDA simply transition the account to the new owner or if the new owner already has an LDA account add them as a node in your organization. Simply put data portability is a big deal when handing off a block a business so review your tech stack vs that of the purchaser to simplify transition of your block. If the advisor selling the block has a CRM find out the export options and how it will marry the systems you use. Will you retain their website and domain or how is that managed (independently or by a 3rd party). Do they use a cloud storage service to store client files and can they be easily migrated.

Value your BOB

There are many ways to value and fund a BOB transaction. A few of the most popular options are as follows:

1. Lump Sum

As it sounds with a lump sum after you arrive at a valuation, you would be paid out all at once. Generally a lump sum transaction will come with a lower multiple, the rational there is no guarantee for the buying advisor that the clients will stick around.

2. Earn Out

In this scenario the selling advisor will receive their payout over a negotiated number of years the longer the number of years the higher the multiple often is as presumably there will be fewer lost clients, often times the agreement will have milestones as well to protect the purchaser.

3. As Earned

This strategy reduces the risk for the buyer, as the deal is structured where the seller gets paid a percentage of the trail income and part of any new policy sold. So if the book does not grow the buyer is not out anything.

Typically a Book will be valued at 2-5 X The gross commission depending on the client mix and the record keeping of the advisor.

Ask for end of year commission statements from each carrier with trailer report, and cross cross reference with issue date in LDA if you can get access to the data for the new block. This will give you an idea of how long the trail income will last.

Ask your MGA the valuation, When a block moves from an advisor at one MGA to another a valuation will be performed as there is some administration at the MGA level, so ask for this info to be sure the value you have agreed upon is in line.

Get creative with how you structure an earn out if you don't have the liquidity to do a lump sum transaction you can structure an earn out that offers you the opportunity to participate on the upside and could create a smooth transition from one advisor to the next.

Why Sell Your Block?

There are many reasons an advisor would sell their block of business

1. Draft an advisor with a higher FYC or a more robust support system (smaller piece of a bigger pie).
2. Take Money off the table - you have worked hard and want to retire
3. Health Reasons - With our aging advisor population many advisors need to quickly sell their block of business due to health reasons
4. Exiting the Business - Moving to another area of focus

Buying A Block of Business

Analysis of the new block

The best way to determine the value of the block you are purchasing is going to be based on the composition of the block (much like it will be for the seller). Knowing what was sold, the expected trailers and how long they will last or even knowing the potential cross sell upsell potential can help you paint a more accurate picture of the true value of the BOB. Ask the selling advisor to request their BOB so you can import it into LDA and easily be able to query product types. Tag the new block so you can easily distinguish existing clients vs the ones you have acquired.

Minimize Churn

When acquiring a block it's natural that some of the clients will churn or move advisors, after-all this is a relationship business and when the primary advisor is gone clients may look for that other friend they have who sells life insurance. Proving your value proposition to your new clients is going to be critical to minimizing any potential churn. A great way to do this is to offer a review or proactively reviewing their existing insurance. By taking this extra initiative showing that you are willing to go over and above to make sure they have the best possible plan for their needs you have a great opportunity to make a good first impression. Clients are going to review your website, the quality of your presentation and communication as well as your knowledge of their specific needs. Having the right tools can help you scale this process and prove your professionalism.

Introduce/Onboard with your new clients

Once you have done your due diligence, analyzed what you are getting, negotiated a price and completed the transaction you can now shift your focus to onboarding. If you have requested the new clients and tagged them now is a good time to start a marketing/onboarding campaign. This is a good opportunity to introduce yourself, your value prop as well as migrate clients into your funnel. Think of using an email campaign combined with LDA LeadGen to re-establish needs or any kind of client KYC that is going to help you better understand your new clientele. It's amazing how much can change in so little time so creating a review of your insurance options landing page is a great way to introduce your process and allow clients to update their needs as well as get an idea on pricing of current offerings.

Why Should You Buy A Block?

1. Entering the business and want to get a running start
2. Know an advisor leaving the business
3. Getting into a niche market (ex corporate clients)
4. Organic leads are hard to generate!

Conclusion

No matter if you are buying or selling a block of business, it's important to have a way to quantify what you have, what work has been done with the clients, and a game plan to service and support the clients going forward. The value of having a well maintained book of business can more than triple the value you could receive, so it pays to have a system in place that helps you achieve this with minimal effort. If you would like to explore how Life Design Analysis can add value to your block of business contact us or sign up free!