First published in the January/February 2014 issue of Round the Table

Most Court of the Table and Top of the Table members are experts in business succession planning and have written millions of dollars of insurance premium as part of the planning they provide their clients. Why is it, then, that so many Court of the Table and Top of the Table members have no succession plan of their own?

Most people think succession planning is about ending your career, but for many, the opposite is actually true. Creating a plan, in fact, enhances the careers of those who do so. Once they start the process, they are freed from doing the things they either are not good at or never enjoyed doing. They are able to take that time and use it for what they do best, which generally creates an increase in both income and satisfaction.

Sometimes it’s too late to plan. Don McLaughlin, CLU, MSM, an industry expert on producer succession planning, closed a speech to life insurance professionals with this story about two Jerrys.

Jerry No. 1

The first Jerry attended one of McLaughlin’s agency presentations on succession planning. Jerry arrived at the meeting in style, sporting a three-piece suit, a walker and an oxygen tank. He later told McLaughlin that, despite his numerous surgeries, illnesses and 82 years on this planet, he found it prudent to attend the meeting about succession planning in case he decided to slow down in the future.

Unfortunately, within the next year, Jerry became very ill and ended up in a nursing home. It became clear that he would be unable to continue serving his clients. There was an agent willing to buy Jerry’s business, but the price he quoted was approximately $1,000 for each year Jerry had been in business. The number astounded Jerry’s daughter, who had moved home to take care of her dad. What happened to her dad’s lucrative practice?

The daughter didn’t understand that her father’s practice had its greatest value when he was in his early 60s and at the top of his game. In the 20 years since, Jerry lived off his service fees, renewals and easy sales to existing clients. Over time, his business declined. In effect, Jerry had liquidated his business by not adding any new prospects over the years. At the age of 82, Jerry had earned the right not to be making kitchen table sales on Thursday nights, but didn’t Jerry’s clients’ children and grandchildren deserve the same solid financial advice their parents and grandparents received through Jerry? He needed a younger associate who could work with his clients and audition for the role of Jerry’s successor.

Jerry No. 2

The second Jerry, at 63 years of age was, in his own words, “living the dream.” He worked six months to qualify for MDRT, then spent the rest of the year touring the country with his championship senior softball team. He experienced and enjoyed the freedom and flexibility this profession promises to everyone who succeeds. Jerry died suddenly one Friday morning with no agreement and no successor.

When his eldest daughter called the company to find out where to go to sell Jerry’s business, she found out the company would pay vested renewals and pending first-year commissions to Jerry’s estate. All other cash flow to Jerry’s practice ended at midnight on the day he died. By dying without an agreement in place, the cash flow to his family from his practice was lost. His daughter also learned that without being licensed or contracted with the company, she was not in a position to offer Jerry’s business for sale. By contract, all of his clients reverted back to the insurance company as orphan policyholders.

Complicating things further, Jerry’s staff had worked diligently to take good care of his clients for the weeks immediately after his death. At the end of the third week, the staff called the company looking for their last two paychecks. The response they received was to contact the daughter, who had just learned Jerry’s business was worth, at best, about 10 cents for every dollar Jerry earned prior to his death.

His three children never wanted to enter Jerry’s business because they “didn’t want to work as hard as dad did.” Now, the children lacked the value of the practice, had the financial debt of the staff and the emotional (and probably legal) obligation to make sure it was paid. Both problems could have been avoided with some planning.

Plan ahead

You plan every day for your clients. Now it’s time to plan for you. If you plan for these contingencies, you will achieve new levels of confidence. If you don’t do it now, your clients and your families will live with the consequences.

For these two Jerrys — and for many of us — examining our practices reveals many clients we have not spoken to in the last 24 months or longer. Wouldn’t it be a great idea to set up an arrangement with a newer, experienced agent who we can introduce to serve these people? It guarantees the clients continue to receive the service we promised, and it is a great way for a newer agent to establish themselves in the business and generate income the experienced agent would never receive otherwise. The final benefit of this is that, if the newer agent proves to be effective, it could be the beginning of a relationship with a potential successor.

We should start taking the advice we give to clients and use it ourselves! Plan for the future, and enhance your present now. For more guidance on creating your individual plan, visit MDRT’s Business Continuity Decision Tree.

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First meeting focus

The two Jerrys