IMO and Agent Succession Discussion w NAFA Nov 2012
-
Upload
eighty20-advisors-llc -
Category
Economy & Finance
-
view
98 -
download
3
description
Transcript of IMO and Agent Succession Discussion w NAFA Nov 2012
![Page 1: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/1.jpg)
Succession PlansWhy you should have one!
Allen Duck w NAFA Nov 2012
![Page 2: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/2.jpg)
Some Statistics• Over 50% of Financial Services business owners and
practitioners are over age 50. Average age is 56.• Less than 30% have a Continuity/Succession Plan.• Less than 15% have a meaningful Plan.
Starting out
Retire
Average Age 56
No of Clients$ Assets
Age 65
Age 35
Independent market.
![Page 3: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/3.jpg)
All practice owners eventually give up control.Very few owners are prepared for the transition.
The unprepared face stress and financial loss.
So – to Set the Tone
![Page 4: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/4.jpg)
There are too many of these and will be more
Too few of these.
Outcome is loss of value in practices, Orphan accounts and dilution of the independent channel. OR – a leveraging opportunity that could significantly benefit owners and the channel as a whole in the coming years.
Industry Problem
![Page 5: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/5.jpg)
50/55 Yr Old Guys
50/55 Yr Old Girls
Likely Buyers
Likely Buyers
Why Now?
![Page 6: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/6.jpg)
Most common “Important but Not Urgent” = Procrastination.
Planned – Prepared – Implemented.
Hit by a BUS.
Exit Strategies
![Page 7: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/7.jpg)
Definitions of possible Events• Succession/Acquisition –
– You control the situation and the outcome.• Continuity
– Triggered by an event you have no control over– Does your business have a WILL?
• No WILL in business same as NO Will personally. Messy and painful.– Plan, Plan, Plan.
![Page 8: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/8.jpg)
I don’t need a plan - Fallacy #1
• I am never going to Retire!
• Yes you are….. Prepare. • Prepare for a living exit and a sudden exit.
![Page 9: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/9.jpg)
Continuity - Disaster recovery
• Share holder – Buy/Sell agreements• Cross purchase• Stock redemption• Personnel
– Key employees– Key suppliers
• Facilities– IT – Data back-up– Business interruption insurance
![Page 10: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/10.jpg)
Succession. Review personal objectives
• Personal Vision• Written personal vision
– View from a point in the future – 3yr, 7 yr. ?– 100 words – use as a weekly reminder
• Spouse/significant other– Create separately– Compare over a bottle of wine– Defer purchase sailboat
![Page 11: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/11.jpg)
Time [t]
Reve
nues
/Inc
ome/
valu
e
Continuity plan development
Execute succession
Succession plan development
Value Protection
Create Grow Mature
![Page 12: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/12.jpg)
Effor
t v S
ituati
on
Owners effort
Time [t]
Execute Succession
Value Protection
![Page 13: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/13.jpg)
I don’t need a plan - Fallacy #2
• Why bother - My Business has NO VALUE!– Clients data– Relationships– Revenue Streams– History of doing business– Growth of business relative to peers
• None of it is tangible but it is valuable…..• Data, data, data.• Cross selling opportunities, other products, services.• Just takes an energized and structured approach.
![Page 14: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/14.jpg)
Decision Criteria and Options
• Family Succession– Can be problematic– High risk for all concerned, emotionally and financially
• Employee Succession - ESOP– Tax benefits– Regulated – complex management
• Unrelated Third Party– Investment– Strategic
![Page 15: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/15.jpg)
Operations review
• Valuation -> Profit• Actions to improve profit - In time for the
changes to add value.– Operations analysis - 80/20– C corp to S corp
• A company’s performance should be measured relative to its peer group and “benchmarked” periodically.
• Review your role – become dispensable.
![Page 16: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/16.jpg)
Firm V Founder
Revenue
Time
Valu
e = X
* Reven
ue/In
com
eFounder
Firm Sta
ble
Un
-sta
bleIs your firm “Institutionalized” ?
![Page 17: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/17.jpg)
Advisors
Team – yours/thiers– Finance/Insurance– Legal– Tax/Estate planning– Exit specialist (Excuse the promotion!)– Attorney– Broker
![Page 18: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/18.jpg)
So what is a Practice worth? • Forget revenue multiples.
– Want a $Billion business? – Sell $1 bills for 90c
• “Show me the Money” – its all about cash flow and….Risk.
• Risk – stable growing revenues have lower risk = higher multiple. DCF is the standard.
Risk
Multiple
![Page 19: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/19.jpg)
• Takes a 5 year +1 projected model of cash flows and discounts them by a factor, or RISK quotient.
• Risk is measured and defined by assessment of risk free investment returns + cost of capital and other factors that would impede future income.
• Assume a business has ALL trails and a risk factor of 25% [this is close to a real factor]
• Its counterpart where all income is commissionable and has a greater risk of failing if the selling advisors[s] no longer want to sell or die. This business will have a far higher risk allocation and lower multiples.
DCF
Risk
Multiple
![Page 20: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/20.jpg)
History is Everything
$1.0M Revenues
Company A
Company B
Reve
nue
$
Time
2 firms each doing a $1.0M in revenues are worth the same? Right?
![Page 21: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/21.jpg)
Inc. Magazine 2010
100k
1M
10M
40M
100k 1M 10M 30M
Note: the general relation ship of Revenues to Value across multiple industries.
![Page 22: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/22.jpg)
Establishing an Offering Package - VP
• What is for sale?• Confidentiality• Prospectus• Markets served/trends• Core competency/differentiation• Brand/IP• Earnings stream and future outlook
![Page 23: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/23.jpg)
So what? Big deal! Who cares?
![Page 24: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/24.jpg)
Why should I care?Two Reasons• Personal
– Clients– Family– Employees– Next Generation
• Best Interest of the Industry– Needs a channel that is vibrant and can relate to
Gen X and Y.– Keep the industry competitive
![Page 25: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/25.jpg)
Why is this important?
Startingout
DIE
Average Age 56
No of Clients$ Assets
Age 65
Age 35
OrphanAcctsIndependent market.
Younger advisors cant make it and leave.
No Succession Mechanism
![Page 26: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/26.jpg)
Interdependence
CarrierInstitutional IMO
Institutional orSmall Business Agents
Small Businesses
>50% w
ill retire in 10 years
![Page 27: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/27.jpg)
Summary Succeeding [selling] a Business
• You need to:– Know what the market is doing around you.– Prepare in time to show a healthy organization– Have a clearly defined Value Proposition that can
be transferred to a new owner.– Develop a valuation around the VP and the level of
sustainable cash-flow the VP generates.– Leave your Ego at home.– Be Flexible.
![Page 28: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/28.jpg)
NAFA Benefits at Work For YouJOIN OR RENEW TODAY!
• Providing you with an ADVOCATE…..Dedicated Washington D.C. Lobbyist, Public Relations Campaign to Take Back the Media.” and Media Responses
• Keeping you UPDATED…NAFA News & Updates NAFAWire , Annuity Alerts, Monthly Legislative or Regulatory Podcast, Compliance Bulletins, Quarterly Compliance Matrix
• EDUCATIONAL opportunities…. Monthly educational webinars, monthly and quarterly Jack Marrion Publications
• Providing you with exclusive SAVINGS and DISCOUNTS……NAFA Smart Savers- discounts on travel entertainment and Life Lock Membership, competitive E&O Coverage, Discounted Software for Suitability Compliance
• Contact [email protected] or www.nafa.com
![Page 29: IMO and Agent Succession Discussion w NAFA Nov 2012](https://reader036.fdocuments.us/reader036/viewer/2022062704/5562df80d8b42a63498b5943/html5/thumbnails/29.jpg)
Thank You - Q and A
[email protected] Tel: 970-325-3820Cell: 970-412-6759
Consulting, Business Development, Practice Efficiency and Succession Plan preparation.www.eighty20advisors.com
Listing and Brokerage services for Buyers and Sellers of financial services practices. Platform for recruiters and applicants providing exposure and access to positions within growing firms.www.eighty20exchange.com