Although life insurance advisors spend much of their careers advocating the importance of planning, many advisors fail to apply that sage advice to their own careers.

Specifically, many insurance advisors – to a greater extent than purely investment advisors – fail to implement succession plans. In fact, many life insurance advisors never plan to retire at all. They are content with the prospect of continuing to sell policies and serve their clients as long as they’re physically able to do so.

Advisors, in failing to consider what will happen to their business when they’re no longer capable of working, are neglecting their responsibility to their clients – and potentially destroying the value of the advisor’s business.

“When you take on a client, you’re promising to take care of them,” says Jim Ruta, a former executive agency manager who is a career coach with Toronto-based now and a video columnist for Investment Executive. “If you have no succession plan and you disappear, that means the help that you promised will disappear when you do. The other issue is, unless you set up [your exit from the business] properly, all of the work you’ve done over your lifetime will have no real residual value to your family.”

Although there are similarities between succession planning for both insurance advisors and investment advisors, there are unique challenges on the insurance side. The structure of compensation in the life insurance business, for example, makes quantifying the value of an insurance practice more challenging.

“[The nature of the business] is a different world for the insurance advisor than for the typical investment advisor,” says George Hartman, CEO of Market Logics Inc. in Toronto. “That’s why there are fewer advisors prepared [for succession] on the insurance side.”

As the advisor population ages, however, the need for succession planning becomes more pressing.

“There’s a need for the people who are getting older to start to think about how they’re going to handle winding up their business or slowing down,” says Nancy Allan, executive director of Independent Financial Brokers of Canada (IFB) in Mississauga, Ont. “You may never want to retire completely, but you have to think about what you’re going to do when you slow down.”

Choose your exit strategy

The first step in succession planning is to determine how you’d like to make your exit from the business. Do you intend to sell your business so that you can maximize your leisure time in retirement? Or do you hope to keep working as long as you possibly can?

Even if you plan to continue working well into your golden years, you should, at the very least, have a continuity plan in place. Such a plan should specify what will happen to your clients and your practice if you pass away or find yourself unable to work.

“Having a backup plan in place really protects your family, protects your clients and protects your business and your investment in your business,” says Allan. If you pass away without a continuity plan in place, she adds, your family may not receive anything for your business.

Many managing general agencies (MGAs) offer advisors the option of signing a continuity plan that would award their estate a certain amount for their business upon death. Alternatively, advisors can institute a continuity plan with another advisor who agrees to take over the business in the future.

If you want to keep working, you also can consider putting together a succession plan that allows you to sell your business, but still stay involved. That approach allows you to hand off the responsibilities associated with owning your business and managing staff while still selling policies and maintaining relationships with clients.

“Succession planning doesn’t have to mean retirement,” says Jerry Butler, president of Queenston Consulting Inc. in Winnipeg.

Selling your practice before you’re ready to retire fully also can help to maximize the value of your book of business. The longer you wait to sell your business – and the older your clients get – the less your business will be worth.

“If you look at the growth of a financial planning business, especially on the insurance side, there’s a plateau and then there’s a slow decline in revenue,” says Butler. “So, if you can sell [the practice] when it looks like it is as rosy as it’s going to get before it plateaus, that’s the best time to do so – like selling a stock when it’s high.”


Determining the value of your insurance advisory business is more complicated than valuating an investment practice. “Valuation is easy to do when there are assets under management,” says Ruta. “On the insurance side, [a book of business] is harder to value, based upon the way compensation is paid.”

A key determinant of the value of an insurance business is the expected revenue from renewal commissions. Because life insurance commissions are heavily front-end loaded, however, ongoing renewal commissions often are not substantial. Thus, in many cases, buyers are willing to pay only one or two times the annual value of those recurring commissions.

Other factors used to calculate valuation are less tangible. For example, factors such as the average age and net worth of your clientele and the types of policies in force can help to determine the potential for future sales from your client base.

“The younger the clientele, the more opportunity there is for additional insurance planning,” Hartman says. “If I can see ways to generate additional revenue from the current client base, then I should be willing to pay more.”

Hiring an independent, professional valuator is an effective way to determine the value of your practice. Even if you plan to sell your business to your son or daughter, Butler recommends conducting a professional valuation. He notes that if the Canada Revenue Agency determines that a business has been sold for less than its value, the seller could face steep tax penalties.

Many insurance advisors are disappointed to find that their business is worth less than they had expected. However, you can take steps to improve the value of your business prior to selling.

Having organized files and a client relationship management system in place, for example, are good selling features.

“Strong compliance and making sure that your files are in good shape really does help your investment and protects your investment,” Allan says.

Find the right successor

Choosing the person who will take over your practice is one of the biggest decisions in the succession planning process. “Whoever this person is, they’re going to be the custodian of your legacy,” says Hartman. “So, who do you want to represent you after you’re gone?”

Your successor must have an approach to insurance planning that aligns with your own. If you’re offering comprehensive tax and estate planning, for example, bringing in a successor who is focused purely on selling term life policies is unlikely to resonate with your clients.

Personality also should be a consideration. “[Your successor] has to be someone you like and get along with, and whom you’re pretty sure that your clients would like and get along with,” Butler says.

Some MGAs offer programs to help older advisors find potential successors. Other third-party services exist to connect buyers and sellers. Toronto-based Find BoB Ltd., for example, operates a searchable online marketplace in which advisors can create a profile for their practice, as well as sophisticated matchmaking services to help advisors find suitable successors.

“[The online listings] are very much like [a real estate multiple listing service] for financial advisors,” says Roland Chan, founder of Find BoB. “You can drill down to find exactly what you’re looking for.”

The company also offers broader succession planning support and guidance for advisors and firms.

As an alternative to choosing an individual successor, some MGAs will buy books from their advisors. Kitchener, Ont.-based Financial Horizons Inc., for example, recently launched a program through which the firm offers to buy advisors’ books of business, then amalgamates those books into various branches across the country, where younger advisors will be recruited to service each of those businesses.

“We’re approaching our existing brokers [who have] substantial blocks [of business] and saying that if they want to have a succession plan, we would like to purchase their business and, basically, take their equity off the table,” says Charles Cuffari, senior vice president of Financial Horizons’ retail division and president of the firm’s Toronto-based mutual fund division, Excel Private Wealth Inc. “We are trying to get these blocks of business that we can then utilize to help young brokers come into the business.”

Tell your clients about your plan

Communicating your succession plan to your clients requires a delicate approach; clients may not be thrilled with the notion of being passed off to another advisor. “If you do it wrong, it sounds like ‘You don’t want to talk to me anymore, so you’ve handed me off to some underling’,” says Ruta. “Clients could feel like they don’t matter to you anymore.”

For your top clients, taking the time to introduce them to your successor and conveying your confidence in that person is critical. For clients you see less often, Hartman suggests hosting an event to introduce your successor or sending out an email announcement offering an in-person meeting.

If you’re concerned about clients perceiving the news as a sign of your imminent departure from the industry at a time when you’re not ready to leave, Ruta suggests framing your announcement as bringing in a new associate to help meet the demands of your growing clientele. “You can position succession as a growth strategy,” says Ruta.

Seek support

A growing number of firms and associations are developing programs and resources to help advisors plan for their transition out of the business. The IFB, for example, will launch a succession planning program this autumn with tools and support for advisors.

As well, the Toronto-based Canadian Association of Independent Life Brokerage Agencies (CAILBA) has formed a committee with several other associations to identify ways to increase the proportion of insurance advisors who are implementing succession plans.

“The industry hasn’t made [putting a succession plan in place] efficient or effective for insurance advisors,” says Michael Williams, president of CAILBA. “We hope to have industry solutions that will help advisors be able to have a succession plan in place.”

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