Succession Planning—The Valuation Stage

In the September issue of Broker World you read my outline of the various options I personally considered on a succession plan of my business. One of those options was to sell my residual income stream. This issue deals more succinctly on the factors that led to my eventual agency sale, along with some planning advice you should also consider if you are considering a succession plan.

Determine Your “Why”
The most important factor touched on in the last article was: “Why.” If you don’t have that covered, you could end up wasting a ton of time and money for both you and your potential successor. With that as your guiding North Star, let’s dig into some of your next critical decisions ahead.

The Who
Once you know “Why” you are doing a succession plan, you need to determine your “Who.” The individual/firm you engage will end up becoming more of a partnership, rather than a transaction. After all, it’s often your life’s work at hand and the commitments you’ve made over a career of valued relationships! You should plan on getting to know and trust your successor- to ensure a smooth transition for you and your clients.

Whether it’s a cash sale, or a deferred payment, the process of transitioning service and relationships built over time is never a “here today, gone tomorrow” proposition. Choose your successor wisely and you will be able to enjoy the freedoms you desire in retirement. Choose the wrong successor, and you may have years of headaches and challenges in front of you! And that, my friend, is a true nightmare when all you wanted to do was retire knowing your clients will be well taken care of while you receive income from the fruits of your labor, rather than seeing your income stream go down the rabbit hole.

How Much?
As counterintuitive as it may seem, you must not start with “How Much.” The highest valuation with the wrong firm will be a disaster. The right firm with a fair valuation will be a much better experience for all parties. Not to say the right firm won’t have the highest valuation, but the former is arguably more important than the latter in this case. Let’s review some of the factors in a comprehensive valuation:

  • Base Revenue Multiplier—A starting point for a Business Valuation.
  • Account Factors—These factors will be asked of your firm if you offer multiple lines of business, and will likely garner a higher valuation for your book.
    • Core Medicare Ratio—What percentage of your book is MAPD vs Med Supplements?
    • Ancillary Ratio—What percentage of your Core Medicare already has ancillary products?
    • Long-Term Care Ratio—How long on the books and age of the client.
    • Life Cross-Selling Ratio—Same as above, identifying sales opportunities for Life.
    • Annuity Cross-Selling Ratio—Same as above, identifying sales opportunities for Annuities.
  • Business Bonuses—Value credits for key structures already in place for successor firm—the more you have in place, the more you should receive.
    • Rolling 12/ 24/ 36 Month Growth—Performance against a benchmark.
    • Entity License—Much easier to transfer value of business with this in place.
    • LOA Downline—If you have downline, whether they are on a Direct Contract or LOA.
    • CRM—If, and what, will be key to a qualified buyer.
    • Staff—Transitions are more efficient with people familiar with your practice/ clients.
    • Independent Branding—Insurance Business XYZ is easier to transition than MyLastName Insurance—unless your name happens to match theirs!
    • Average Client Age—Credits given to proximity to an optimal age fit with their practice.
    • Contracts Above Street—If you possess contracts above Street Level, these would be valuable for someone who has lower levels now.
  • Deal Terms—Each of these factors will change value higher/lower for you.
    • Up-Front Payment—How much you receive at closing.
    • Payment Term—How much you receive over time (and with what stipulations).
    • Commission Splits—Your percentage of your sales on new prospects and/or their sales on your clients, if either are applicable.

If the firm you’re working with doesn’t seem to care about these things, they either don’t know what to ask, have no experience in what they’re doing, or have a model that may not be the best fit for you or your clients. If they don’t know these values for themselves and aren’t asking yours—there could be some bumps along the road!

Warning There are firms that are out there who will price your business for “Run-Off.” What this means is that they will pay you what your book will actuarially produce in future renewals, with room for the cost of money and a profit margin. Or to be direct—They are buying your accounts to effectively die off. There will be no service, intentionally, and your clients will be left dealing with the carriers.

At one point in my insurance career, I needed capital to retire my home mortgage. I settled too quickly. A firm offered me an outright one-time payment of 200 percent of my ongoing long term care renewals. Since that time, I have had mixed emotions, in that with the constant escalation of premiums many of those clients dropped their policies. So having already received my income, this didn’t hurt me financially. However, I still feel somewhat cheated, as the acquiring firm somehow never reported to the insurance providers that a change in agent servicing had occurred, and I continued to receive all the ongoing servicing calls and the need to assist my former clients on what options were best for them when those premium increase notices were received. I loved what I did, and I therefore felt an obligation to help my former clients, even though there was no income generated for my assistance.

In my next article I will put together a checklist, timeline and expectations for What/When/How. Additionally, we’ll consider Best Practices as well as what to look out for at every stage!

is a graduate of Wichita State University with a degree in Business Administration, and then earned his MBA from the University of Arizona. A late bloomer to the insurance world, Dean joined with what was then GE Capital Assurance in Overland Park, KS, as a captive agent selling long term care insurance for Genworth in 1999, and after earning the title of Master Agent, broke free of the captive status and served as a consultant to Personalized Brokerage Services in Topeka, KS, when they were developing their LTC Division. For 10 years Dean managed the Senior Products Division of Forrest T. Jones & Company in Kansas City, MO. While serving in this position he quickly understood the need to guide individuals who needed assistance when they became Medicare eligible. This in turn became the major thrust of the division, and thousands of prospective clients were assisted, primarily members of the Missouri Retired Teachers Association. Dean became widely known as “The Medicare Man” throughout the association of more than 25,000 members.

Dean then formed his own agency, Senior Products Insurance, which is now located in Shawnee, KS, and eventually sold his book of business to a firm in Iowa that specializes in managing and servicing insurance clients on behalf of agents. Dean is licensed to market life and health insurance products in 11 states.

Dean and can be reached at, or at Senior Products Insurance, 15729 W. 62nd St., Shawnee, KS 66217. Telephone and text: 913-909-3749. Email: