Family-run brokerages are predicated on parents passing the torch into the hands of their sons and daughters – but too many aren’t planning for this transition, and that is a recipe for disaster, says one industry veteran.
“There are lots of brokerages who are getting to that point where they have to consider an exit strategy, and they don’t have a plan,” says Bob Nicol, president of Nicol Insurance. “That is something accountants will tell you they see from a lot of small business people. It is not unique to insurance, for sure.”
As the baby boomer generation begins entering retirement age, those independent owners are either selling or looking to their children to take over.
But for some, simply handing over the keys to the kids isn’t economically feasible.
“It is their retirement, so they just can’t give it to their kids,” Nicol told Insurance Business. “It poses some challenges. Unfortunately too many people don’t really want to think about it, and then something happens, and then it becomes a difficult situation to find solutions, be it for them or for their family.”
Although the slow erosion of the independent broker channel continues – and Nicol is planning to hand over his brokerage to his children when he eventually steps away from the business – he doesn’t sit in judgment of those who decide to sell to an insurer.
“What happens in many cases is the business becomes available for sale, someone writes a check, and it gets gobbled up,” he says, “and our association is trying to retain the independent aspect of brokers, as opposed to them all becoming corporate shops – in some cases, controlled and operated by big insurers. However, in every individual situation you can’t pass judgment on an owner of a business who is offered a lot of money for what they’ve built, regardless of who it is who has offered it.”
What it will always boil down to is what the best business decision for both the broker and the family.
“At that point, the best business decision for themselves and their family,” says Nicol. “I don’t think it is fair to judge someone who has sold their brokerage to a company that is owned and operated by an insurer. But if it is a family business, which most brokerages in the past were, the first thing you want to find is a family member who wants to perpetuate it. And that’s not always the case.”
Nicol, whether through good luck or good planning, has two children who he feels are ready to take the reins at the brokerage.
“My kids are in the business by their choice,” he says. “It turned out that they came to me at different points, and said, ‘I think this is something that might work for me’, and I said, ‘OK, let’s give it a try.’”
In the case of Nicol’s son, who came into the business second following his sister, he has worked at the company for almost eight years.
“Enough time has passed for him to get a better sense of what the business is all about, what it will take to perpetuate it,” says Nicol, “and I also have a sense if they are able to do it and make it work.”
But not all independents have the luxury of children who want or are capable of entering the insurance industry. And sometimes, says Nicol, it is better to just accept that fact and let go.
“It wouldn’t make much sense for me to have my children take over the business only to watch them fail at it,” he says. “It wouldn’t be in their best interest or mine. I see some small business owners make that mistake of trying to convince their kids to come in – but if they are just creating a job for them, you’re better to set up a trust fund for them from the money you get from the sale, rather than have them take over the business and squander the asset away over the years.”
But for those who do have children ready and eager to take over, begin the transition now, Nicol urges, and not as you are about to walk out the door.
“If you have time on your side, start now,” he says. “You can’t wait until the last year, and say, ‘OK, here’s how the business operates.’ Does that make for a smooth transition? I don’t think so. It’s not going to work.”