NAILBA Perspectives - Spring 2018 - 11

o you have a succession plan for
your BGA? No? Is your reason on
this list?
■■ I don't know where to start, what
to consider, or what steps to take.
■■ I don't have a successor so I don't
need a succession plan.
■■ I
don't need a succession
plan because I'm going to
work forever.
■■ My son or daughter or other relative will take over the business so
I don't need a succession plan.
■■ My health is good so I'll plan for
succession later.
■■ I'm too busy trying to build sales
to address this.
These seem like odd attitudes for
people who are in the business of
helping others plan for the financial
futures of themselves and their families. But like it or not, the reality is
no one lasts forever and while retirement can be on a set date, there is no
way to know in advance when a BGA
principal will die or become unable
to work.
"The primary goal in any succession plan is to create stability for the
agency and its constituents and continuity of revenue flow in the absence
of the owner," explained Melinda Meyer, Founder and President of Aspen
Strategies and former BGA executive manager. "Look at it as the 'strategic life insurance' for your agency
and its legacy. When we think of succession, we may think of handing the
business over to someone else. But
every business owner should have two
plans: one for business continuity in
case of an unplanned triggering event
like death or permanent disability and
another covering a planned transition
away from the business at a specified time due to the owner's partial or
full retirement."
Both situations require a logistics
plan of "what, how, who, and when,"
Meyer said. Creating this plan is analogous to the reasons agents need a
BGA owner. Agents need the BGA and
their team to navigate the complexities of access to and acquisition of
insurance. To plan and implement
a business continuity plan the BGA
owner should consult a business continuity strategist who understands
the BGA environment and its detailed
considerations. The strategist will ask

probing questions to learn what the
BGA wants short term and long term,
and will then provide the BGA with a
step by step action plan and timetable to implement the succession.
Part of the discussion should cover the business's legal structure. The
business owner, along with their CPA
and their attorney, should determine
what structure best suits their goals,
finances, and legacy considerations.
If the BGA has identified a successor,
that person should also be included in the determination. Sometimes
a change to the current structure is
required prior to creating the formal
succession plan.
Dan Eibner, President of National Brokerage Agencies, Inc., recommends that if there is a family member, second or third generation, who
wants to take over, but the founder/owner is reluctant to start a plan,
he encourages them to start the succession planning process themselves
by "creating a record of the historical perspective of the business." They
should ask the founder/owner to make
a video about how they started the
business to document what happened
in the past. It will explain how they
took the initial steps and what they
did to start and build the business,
including their own financial and personal sacrifices.
The founder/owner should focus
their narrative on these topics: relationship building, marketing methods, developing business acumen, and
learning from others in the industry.
While this historical review is often
overlooked, requesting its preparation shows the owner/founder there is
sufficient respect for everything they
did to build the business and how it's
now time to preserve the future of the
business with a succession plan. This
history should also include video testimonials from everyone involved in
the firm's early days.
Choosing a Successor
Many BGAs are family owned businesses. Some children or other relatives of the owner may work in the
business and be interested in becoming the new principal. Other children
may have no involvement.
"The complexities of creating and
implementing a plan are exacerbated

when family members are involved,"
Meyer noted. "This elevates the emotional component in planning, decision making, and objectivity. A BGA
principal may feel their son or daughter is a natural to take over the business. That child may only do so out of
a feeling of obligation to the parent
or because they lack another career
plan. Creating an objective plan in
which any succession candidate is
evaluated and assessed to balance
their skills, training, and personality
with the requirements of ownership
is the first step in defusing emotions.
Each succession candidate should be
considered on their own merits and
abilities to lead and build a business."
"The key is determining whether
the obvious family successor has the
qualities needed to make the business successful," noted Eibner. "Can
the current owner count on them? You
can't just assume because someone
is in the bloodline they can take the
business and move it forward."
Let's look at some real cases.
These examples of BGAs with complex family agency situations show
why it is critical to have a plan specifying who takes over and the related logistics. Absent a plan, there will
be chaotic limbo and the business, its
agents, staff, and revenue will flounder. Names have been changed to protect the privacy of those mentioned.
Henry started his BGA 40 years
ago. His son, Charlie, has grown up
in the business, knows all the agents
and insurance company executives,
has traveled with Henry on insurance company award trips, and has
always known that one day he will
be in charge of the agency. Henry
expects to transition the business

to Charlie fairly soon. But the reality is that Charlie feels pressured by
his upcoming "seat at the table." He
is not a natural leader. The tasks of
managing staff, creating holistic, big
picture strategy, and recruiting new
agents and revenue producing opportunities are not his passion. But how
can he say "no" to Henry when Henry is counting on Charlie to take
over? How does Charlie tell Henry
he doesn't want to be the next leader of the organization? Unbeknownst
to Charlie, Henry realizes Charlie isn't
the man for the job. How does Henry encourage Charlie to find another
career more suitable for him?
Max is a second generation BGA
owner. Max has been grooming his
son, Cooper, to take over the business one day. Problem is Cooper
doesn't enjoy interacting with others.
Agents, insurance companies, regulators, and agency staff frustrate him.
Cooper prefers being in an environment where he can work independently, maybe doing project management.
How do Cooper and Max tell Mom this
isn't going to work long term when it's
her expectation Cooper will someday
be in charge?
Greg is a first generation BGA
with a spouse and six children. Only
one child, Joe, is a good fit to take
over the business. How does Greg
create a plan for Joe to own the
business without appearing to give
Joe preferential treatment over the
other five children? If Joe gets the
business as a legacy asset, what
does Greg do financially for his other five kids? This shows the importance of how a BGA must coordinate
his estate planning with his business
continuity planning.
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Table of Contents for the Digital Edition of NAILBA Perspectives - Spring 2018