By Heath Waddington, Senior Vice President of Sales & Marketing
It should come as no surprise to anyone that I have met and spoken with a whole lot of financial professionals (FPs) over the last 15 years. After all, that is our business at Ann Arbor Annuity Exchange (AAAE). If you look at many of our top FPs, they often have a common thread that unites them. Many of them began in this business years ago and were trained to sell under a career/captive model, and then at some point left that company to strike out on their own as an independent producer. With some simple math, you can calculate that these FPs got their start in the business in the 1980s, which puts them in their late 50s to early 60s.
Flash forward to today and that career/captive model is a shadow of its former self. Relatively speaking, few FPs enter the industry as insurance agents. Most of the new FPs that appoint to work with AAAE come from broker/dealers. There is seemingly more attractiveness to the idea of being a registered representative versus a career as an insurance agent, which has been labeled “boring” by the younger generation.
While I will not claim to have the answer to a decades-long problem of our industry’s aging workforce, it does seem to present an opportunity to those FPs that would like to not only pass along an entire career’s worth of knowledge, but help set themselves up to transition out of the business successfully.
In a LifeHealthPro article from July of 2012, an ING† executive proposed a potential solution: mentoring. As the article points out, many agents are reluctant to enter into a mentoring situation because they either do not want to pay a wage to a junior agent, or they have no interest in sharing commissions. However, it can actually work out quite well for all involved if done right.
“There are many opportunities to offset the cost of bringing in a junior agent. Mature agents who have robust practices with affluent and mass affluent clients have huge affinity prospect pools attached to all their client relationships – children, children-in-law, grandchildren as well as key employees of their business clients. They can begin targeting the affinity relationships, allowing the junior agent to take the lead in helping with their insurance needs and to build their own client base. The opportunity can be significant and represents additional revenue opportunity for the senior agent through commission sharing. Further, the activity of the junior agent is likely to uncover additional, more advanced insurance needs that can get funneled to the experienced agent to handle.”The benefits of this type of relationship are twofold. First and foremost it addresses the issue of the aging workforce in the insurance industry. While the type of sales training that used to be the standard for this industry is much harder to find in 2017, a mentoring relationship is a great opportunity to pass knowledge and skills to the younger producer. Second, but equally important, it may provide the opportunity for the senior producer to transition out of the business at retirement and “monetize” his practice after he stops working. A revenue split could be set up for the senior producer on business generated from his client list written by the younger producer for a period of time, assuming the senior producer maintains their insurance license.
For registered representatives (RRs) this is a much more common practice. Much of the revenue RRs derive has a recurring or trail aspect. That combined with the ability to electronically transfer an account (ACAT) from one RR or broker/dealer to another makes monetizing a business much more prevalent.
One of AAAE’s partnering broker/dealers, Sigma Financial Corporation, has developed a platform that helps pair up RRs. Sigma Financial offers its representatives this resource on its proprietary website. The system was created for RRs to learn about selling a business and retiring, growing a practice through acquisition, and succession planning.
Sigma Financial executive Jennifer Bacarella* designed the system’s buy/sell platform based on the internet dating site concept. RRs looking to sell their practice and retire fill out a questionnaire breaking down all aspects of their business. Likewise, RRs in acquisition mode fill out a questionnaire describing their current book. The information is downloaded to a specially designed software system created by Sigma Financial where compatible RRs and books of business are identified. The system aims to improve the efficiency of the buy/sell process for all parties, including affected clients, who as a result are served by like-minded professionals working toward the same outcome. The idea underlying the system is to allow the parties in buy/sell transactions to be as comfortable as possible with the results.
When doing succession planning, there are many important considerations and ones that must be thought through deeply. Knowing how your clients would be served if you can no longer run the business, capturing basic client/beneficiary information, understanding and doing a proper practice valuation, and aligning with the proper bank for financing the succession transaction are all important. Systems such as this one that cover these topics and even allow for the storage of all the needed forms and agreements for such an important transaction could prove to be very useful in completing your succession planning and should be a part of your vetting process.
Succession planning systems are designed to help move the industry forward in an effort to smooth inevitable transitions, serve affected clients with care and diligence, and provide the added advantage of helping younger RRs grow their practices.
Producers and advisors spend a lot of time helping their clients plan for retirement. When their clients are young, they are likely helping them grow their assets to prepare for what can amount to 25-30 years in retirement. As they near retirement, many people’s priorities change from growing their assets to maintaining and then eventually distributing them in the form of retirement income. Makes sense right? Nothing too revolutionary in that concept. Don’t forget to do the same for your own retirement!
If you have questions about succession planning or the problem of an aging workforce, feel free to call us at 800.321.3924 and ask to speak to a marketer.
Heath Waddington | Senior Vice President of Sales & Marketing
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x140 | Dir: 734.786.6140
†ING U.S., Inc. rebranded in April 2014 to Voya Financial, Inc.
*Jennifer Bacarella offers securities through Sigma Financial Corporation, member FINRA/SIPC.
Ann Arbor Annuity Exchange is not affiliated with Sigma Financial Corporation.
 Anderson, Brian. “Facing up to an aging workforce” LifeHealthPro.com. 01 Jul 2012. Web. Accessed on 24 Jan 2017 at http://www.lifehealthpro.com/2012/07/01/facing-up-to-an-aging-producer-workforce
Designed for Financial Professionals.