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Agency perpetuation—Your deal or their deal? PIA National offers tool focused on perpetuation planning By Bill Jenkins Will it be your deal or their deal? When it comes to the future ownership of your agency, that really is what it all comes down to. If you don’t take the steps to control your own future, others will do it for you. Too often, the term “insurance agency perpetuation” creates an inaccurate perception. The word “perpetuation” is interpreted as meaning something that happens in the future, when in fact, “the future” is actually being determined by what you do—or don’t do—today. While some might take this as some sort of lofty philosophical idea, it’s not. Rather, this is a “here and now” business reality. Here are some real life examples: The owner of a second-generation agency in Michigan assumed that since his father had passed the agency on to him several decades ago, he would be able to do the same with his son who had worked in the agency for several years. During the year prior to the owner’s carefully planned retirement and a permanent move to a vacation home in Arizona, plans for the transfer of ownership were quickly made. These plans were made based on a mutually agreed-upon agency valuation and optimistic projections for growth and cash flow over the next 10 years. Naturally, the father was leading the plan and the son was following along. At the last moment, the son dropped out of the deal. He was not willing to assume the financial risk. Because the father was so far along in his own retirement plans, he was forced to accept an offer for substantially less from a third party who was not nearly as optimistic about the agency’s future and its book of business. In contrast, Robert Fowinkle, CIC, CLU, has taken a long-term approach with regard to the perpetuation of his Bradenton, Florida-based agency. A videotaped interview with Fowinkle on the CD-ROM which accompanies this article outlines the careful and deliberate long-term planning he’s used to help assure the perpetuation of his agency with his daughter. These examples describe the difference between whether it’s “your deal or their deal.” Perpetuation of an agency involves sustaining the existence of an agency, and this can take many forms. In some cases, as in these examples, it involves agency ownership being transferred from one generation to the next. In other cases family members are not involved or involved in different ways, such as when spouses share ownership. Agency perpetuation often involves buying out partners or bringing in new partners. The options for agency perpetua-tion or other forms of ownership transfer are numerous. Employee stock ownership plans, or ESOPs, are common, as are a variety of different forms of merger and acquisition. To address these options, the National Association of Professional Insurance Agents, or PIA National, has created Perpetuation Central through its work with “The Partnership,” a group of national and regional insurance companies. PIA members and “The Partnership” companies agree that agency perpetuation and ownership transfer must have a higher priority in agencies, especially those where change is being contemplated within the next 10 to 15 years. Perpetuation Central bridges the gap between having some vague idea of a plan or no plan at all and the actual design and implementation of legal and financial details. Naturally, when it comes to legal and financial matters, experienced experts need to be directly involved in these details. If you are an agency owner/principal, it’s likely that you have already considered many of these issues in one form or another. Perpetuation Central takes an overview approach, enabling you to review many options involved in the change of agency ownership, including some you may not have previously considered. There may be more steps than you realize in reaching your goals. When do you need to turn to experts for advice and counsel and how do you make the decisions necessary to put together and advance your plan? If you are not currently an agency owner but want to become one, Perpetuation Central can help you succeed as well. By providing knowledge and information which will help you understand the dynamics of ownership transfer, it can better prepare you to take the initiative. And initiative is the key requirement to success as the owner of a professional independent insurance agency. The CD-ROM that accompanies this article introduces you to Perpetuation Central. By under-standing the issues involved with agency perpetuation and starting early to make your decisions, you can plan for the future and you can take control of that future. You can make it your deal, not theirs. * The author
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