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Annuity Research Quarterly 4th Quarter 2012 National Association for Fixed Annuities

Securing the Future!

Produced as an exclusive benefit for NAFA members by Allen W. Duck and David A. Cunningham of Eighty20 Advisors, LLC

Independent Insurance Agencies & Marketing Organizations: A Future In Jeopardy This provocative header leads into a discussion on divestiture planning and is addressed to owners of independent insurance agencies and the Independent Marketing Organizations (IMOs) that serve them. The notes also apply to Financial Planners and Broker Dealers (BDs). The paper offers an overview of an industry trend, followed by detailed opinions on actionable suggestions for responses by the major players and individual firms.

In the Beginning

Forty years ago affluent individuals bought insurance to cover life’s risks, and stocks and bonds to add to their wealth. They bought insurance from an agent representing one of the major insurance carriers and they used a stockbroker from one of the big brokerage houses. The agents and the stockbrokers followed company instructions concerning the product selection or investment strategy that should be presented to the client. Sometime in the ‘70s a number of agents and brokers saw that this process was not serving their clients. They recognized the need to understand each individual’s circumstances, objectives, and risk tolerance. They became financial advisors and planners and launched independent firms. The early practitioners were sales oriented. They developed a strong marketing ethos, based upon the client value proposition of personal service, providing objective, unbiased advice and personal accountability. This spawned a large industry benefiting a huge client base. The industry received a boost from low cost trading houses; the internet changed the profitability of certain products but raised awareness of added layers of sophistication in insurance and investment product selection. The independent financial service industry created its own service needs. In the ‘80s these needs were filled by the IMOs for insurance products and the BDs that provided access to securities products. The industry and its providers thrived. The crystal ball indicates that consolidation and client demands will expand the participation and growth of full service firms. However, this rosy picture includes some thorns.

The Impact Of Demographics

Today the industry is under threat from several directions. Marketing requires new sophisticated processes of client segmentation, better one-to-one communication and increased client education. Financial service providers are getting lost in the noise that rains down from the “internet information cloud” and deafens prospective clients. On the regulatory side cumbersome structures frustrate communications and efficient transaction processing, particularly for producers. This is somewhat off-set by the improvement in back office software and smart phones, but it is a cause of anxiety for producers who did not begin their careers with

The Annuity Research Quarterly is a analysis of current topics and issues facing the annuity industry and is available to NAFA members only. Any distribution, reproduction or use of contents is strictly prohibited without the express, written consent of NAFA. Reprints for NAFA members may be ordered at www.nafa.com. 2013_0108_Publication_AnnuityResearchQuarterlyQ42012

NAFA Annuity Research Quarterly | 4th Quarter 2012 | 1 |

an iPhone as their workbook. However, the overwhelming issue that is jeopardizing the very future of the industryPage is demographic. 2 Advantage Compendium Fall 2012 Population By Age: 2000 and 2010

85 years and over 80 to 84 years 75 to 79 years 70 to 74 years 65 to 69 years 60 to 64 years 55 to 59 years 50 to 54 years 45 to 49 years 40 to 44 years 35 to 39 years 30 to 34 years 25 to 29 years 20 to 24 years 15 to 19 years 10 to 14 years 5 to 9 years Under 5 years 0

5,000,000

10,000,000

2000

15,000,000

20,000,000

25,000,000

2010

There are fewer younger people overall and fewer of them have expressed an interest in this career area than did the previous generation. Neither the insurance nor the investment wings of the industry have done a good job in recruiting new talent. “How many of you would like to own a company providing a crucial community service that would provide you with a $150,000 income?” Recently we had the opportunity to present an entrepreneur workshop for 70 Colorado State University business school seniors. We asked the question, “How many of you are considering a career in financial services, either providing risk mitigation and retirement products as insurance agents, or wealth generation as financial advisors?” Not one student raised a hand! We then asked, “How many of you would like to own a company providing a crucial community service that would provide you with a $150,000 income?” fifty hands were raised. The implication from this single data point is that the X generation has no understanding of the financial services industry and no enthusiasm for being part of it.

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this single data point is that the X generation has no understanding of the financial services industry and no enthusiasm for being part of it. Another issue is that recent graduates with big career plans may not fit easily into small firms. There may also be a generational problem in that Generation X age employees may have a Another issue is that recent graduates with big career plans may not easilyofinto firms.and There may also reluctance to market themselves in face-to-face presentations andfitmany thesmall existing be a generational problem in that Generation X age employees may have a reluctance to market potential agents or clients of the business may be older and prefer a more personal approach.themselves in face-to-face presentations andtomany the existing and potentialenthusiasm agents or clients of theset business may be Simply put, it may be difficult find of people with the necessary and skill to

older and prefer a more personal approach. Simply put, it may be difficult to find people with the necessary enthusiasm and skill set to assume the ownership of financial service practices. If this proves to be true, it could assume the ownership of financial service practices. If this proves to be true, it could change the change the prospects for the industry’s growth.

prospects for the industry’s growth.

Without obvious succession succession Without ananobvious path and abilityfor for younger path and ananability younger participants to enter themarket market participants to enter the the independent channel maylose lose the independent channel may ground back to the institutional ground back to the institutional channel. channel.

Agents & IMO Leaders Are Hitting Retirement Age We usually react to sudden pain. The reason most agencies and IMOs have not implemented a divestiture plan is because it is not causing a sharp pain today – the owners feel that the sale or Agentsof&their IMObusiness Leaders Areaway Hitting transfer is years and Retirement so there isn’t a Age sense of urgency about it. However,

We usually react to sudden pain. The reason most agencies and IMOs have not implemented a divestiture plan is because it is not causing a sharp pain today – the owners feel that the sale or transfer of their business is years away and so there isn’t a sense of urgency about it. However, not creating a plan creates a chronic malady that increases as the business fades away because the owner has not taken action to assure its continuation and to realize the value created. The reality is the agents who entered the business in the ‘70s are looking to retire and most are totally unprepared for this transition. The blunt truth is many are excellent analysts and communicators, but few are good business managers when it comes to their own succession planning. An oft expressed belief by the owner is that they will never retire. Instead, they’ll keep their “hand in it” but take longer vacations and leave earlier in the day, basically becoming a part-time owner. Unfortunately, this is a dynamic industry that requires a full-time focus. The usual course of events is as the owner devotes less time to the business the income drops and the value of the business falls, finally reaching a point where it has no value. It is a big step for the owner of a financial services firm to sell the business. There is a particular state of mind that only business owners can appreciate. It comes from pride in the achievement of establishing a trusted relationship with clients, providing for a family, offering employment, exercising both authority and

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It is a big step for the owner of a financial services firm to sell the business. There is a particular state of mind that only business owners can appreciate. It comes from pride in the achievement of establishing a trusted relationship with clients, providing for a family, offering employment, exercising both authority and compassion, and contributing to the community. compassion, contributing to the community. respect and it is difficult to give Businessand owners command respect and it isBusiness difficultowners to givecommand this up. The preferred decision this process up. The preferred decision process starts with the owner’s self-assessment including a personal vision starts with the owner’s self-assessment including a personal vision for the next stage of for the life, next family stage ofand life,community family and community obligations, staff relationships and current contributions to obligations, staff relationships and current contributions to the the success of the firm. This should include consideration of wealthofdestruction that occurs when owners stay too success of the firm. This should include consideration wealth destruction that occurs when long. owners stay too long.

If these high performance leaders retire without implementing viable succession programs producers will migrate to adjacent firms, and annuity and insurance clients may even discontinue If these high performance leaders retire without implementing viable succession programs producers will their investment in these products and services. In the first case the owners will lose the wealth migrate to adjacent firms, and annuity and insurance clients may even discontinue their investment in these products and services. In the firstthe case the of owners will lose wealth that should beprofit theirs generating from the value that should be theirs from value the firm as anthe on-going revenue and of the firm as revenue profit generating entity. Inand the individuals second casewill the entire industry entity. In an theon-going second case the and entire industry will contract be at risk and will out

contract and individuals will be at risk and out of participation in the growth of the U.S. and global economies. This raises the question – who will be the successor? Sons & Daughters We once asked the owner of a successful agency whether he had a succession plan in place and he responded that his son was going to take over the business. We asked how old his son was and he said age 7. If you ask a seven year old what they want to be when they grow up they say they want to be a fireman or a doctor or an astronaut. We’ve never heard one say “When I grow up I want to run an insurance agency”. It may be unrealistic to plan divestiture by assuming that the children’s future adult interests will coincide with the parent’s business needs for succession. On a more delicate note, even if the child has the interest he or she may not have the ability to run a business. There are many agencies and IMOs where the children of the owner successfully take over and there are many cases where this doesn’t happen. If the children aren’t the successors who is?

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Employees Although more common with agencies than IMOs the owner of the business may sell the business to an employee. After all, the employee knows the customers and understands how the business works. This raises a couple of issues. The first one, again delicate, is does the employee have the ability and skills needed to act as owner? The key question is whether or not a succession candidate is a producer. Can they engage with clients and close contracts? The second issue is can they manage staff and money? Even if the perfect successor employee is found how does the owner get cashed out? U.S. banks have lots of cash but they are under orders to improve their capital ratios. Financial services firms do not have substantial assets other than their client lists, and possibly recurring income streams from assets under management. Banks tend to lend money collateralized by bricks and mortar, equipment and revenue contracts – the assets of agencies and IMOs tend to be more ethereal. In addition, the typical agency or IMO is far too small to raise capital through private placements or public securities offerings. The usual answer is owner financing where the seller receives a share of the ongoing revenues. Third Party The other choice is for an unrelated party to buy the business. Potential buyers for today’s agencies and IMOs are ideally in the 35 to 45 year age brackets, however, the most talented in this age group has often found a good career at this stage of life and is not interested in gambling on buying a business. This desirable age bracket is a shrinking population component and this limits the number of potential buyers. There is also the problem with a lack of financing options. M&A Selling the firm to another agency, IMO or, even to a carrier is a time honored way to cash out a business. The buyer understands the industry and has employees with the skill set needed to operate the acquisition. The buyer may even be sufficiently large to be able to write a check, rather than paying the owner over time. The size of the acquisition market is growing and we are seeing more cases where this is how the owners of successful agencies and IMOs realize the value they’ve created by selling to a competitor or supplier. Although the business may be essentially gifted to an owner’s children, the divestiture to other parties requires a selling price to be set. Both the buyer and seller need to take steps to ensure a fair price is paid for the value realized.

The Divestiture Process

The acquisition/divestiture process begins with  Taking a self-assessment as a buyer/seller  Establishing a practice valuation that can be funded – demonstrating & defending the value  Understanding the reality of transition execution – what actually happens during the process The reality is both seller and buyer lack the bandwidth to field acquisition/divestiture teams and few conventional business brokers have sufficient knowledge to advise on the regulatory compliance issues in a financial services transition. Several consulting companies offer practice management support and a couple offer a brokerage service. All would agree that there are issues that need to be addressed before a “for sale” sign is placed on the business.

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Decision to Sell

Decision to Buy

Once the decision is made the owner should step back and examine immediate continuity and disaster recovery capability. Continuity includes review of Buy/Sell agreements with equity partners and key man retention plans.

The decision to buy starts with confirmation that an acquisition meets the financial objectives of the firm. Once that is established the buyer needs reviews including:  Selection of an advisory team

The next steps include:

 Availability of capital for a determined price range of a target firm

 Establish confidentiality protocols – need to know limitations

 Responsibility assignment for managing the acquisition

 Assessment of family succession or management buy-out

 Corporate culture review and how an acquired company would fit

 Selection of a transition advisor team

 Preferred product fit – provider compatibility

 Review of actions that can be taken to improve the revenue and profit trends for the years that will be used to compute a practice valuation – (e.g. termination of small accounts)

 Preferred client demographics  Preferred geographic fit  Fee structure of the target firm

 Recasting financial statements

 IMO, FMO, OSJ, BD compatibility, certification and licensing

 Strengthening brand and marketing programs  Review management team for suitability and incentives to make the sale a success

 Assessment of the organization’s ability to absorb new business

 Determination of practice valuation

 Staff bandwidth – back office systems

 Creation of a prospectus

 Staff strength at the target firm

 Selection of a broker

 How and where to announce and have visibility for an interest in buying a firm

 Review of potential term sheet issues

 Preparation of a solicitation of interest document supported by a company presentation demonstrating strengths.

 Determination of the owner’s role in the transition – client retention responsibilities

 Advertising program  Filtering process to eliminate unsuitable prospects  Term sheet issues  Transition management including participation by the principals of the acquired firm

Buyer’s Priorities - Producer or Business Manager?

The decision to execute an acquisition, either within a specialty or cross discipline, raises the concern about the role of principals in a firm. In many cases the equity owning buyers are the top producers in their old company. As the size of the firm grows the owners have to spend time managing personnel, marketing programs, education programs and business systems. Inevitably they spend less time with clients and their personal revenue generating productivity is affected. An acquisition brings this issue to a head. Not only do the acquirers need to deal with the day-to-day operations of a larger entity, they have to manage the integration of staff and products. Even if the acquisition is presented as a merger, there is no such thing as a “merger”. In most cases one culture dominates another and an acquisition that was intended to be a merger of equals becomes an acquisition. Frequently this results in certain personnel not fitting with the new entity and staff changes have to be made. Business management becomes the top corporate priority. This productivity risk should be taken into account when assessing the merits of an acquisition. 2013_0108_Publication_AnnuityResearchQuarterlyQ42012

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Practice Valuation

What type of business are you selling or buying? Benchmark comparisons between insurance agents and investment advisor operations demonstrate significantly different metrics for profitability and revenues per employee (Data source: Sageworks – ProfitCents – 2011). On the face of it, this presents a challenge in arriving at a valuation for an acquisition if it is based upon multiples of revenues or profit, where the revenue streams themselves attract a different mechanism of valuation. This can be resolved if the valuation for the transaction is based upon discounted cash flow. Essentially the buyer is acquiring a stream of cash over a period of time and that has a net-present-value regardless of the profit percentages or other metrics. On this basis the buyer could be from either side of the industry. The mix of products also delivers the merged firm a balanced cash flow from its portfolio. One difficulty in establishing the valuation of a practice is that a potential seller may focus exclusively on multiples. “What multiple does my recurring income create?” and “Why is the commissionable income that I generate valued at a lower multiple?” The beauty of a discounted-cash-flow model is that it applies a different risk factor (the discount rate) on the streams of revenue that are being generated. Say that last year an IMO earned $500,000 in annuity commission overrides on new sales and $500,000 in annuity trailing commissions. When it comes to valuing these revenues the buyer will pay more for the $500,000 earned from trailing commissions because there is less risk that this income will diminish (new sales are more affected by new risks than income that is not dependent on new sales). The source of the sale and the commission also affects the valuation. For example, if the new sales were from an agent that has since left the firm those sales have little future value, but sales commissions produced by payroll deduction plans from a long-term agent would have a higher valuation since they are more likely to continue. Because of this whether a firm with recurring income is worth, say, 2 times that of a firm with only a commissionable income stream is a separate discussion and not as simple as many would believe. As an example, it is true that a book of business that relies exclusively on commissionable sales will quickly fail if the marketing and selling activities falter – and therefore it has higher intrinsic risk for the buyer and it is assigned a higher discount. By comparison a firm with recurring income – from trailing commissions or assets under management – will theoretically continue to see income even if the business activity is allowed to diminish; it has lower intrinsic risk and a lower discount. When risk is reduced, the valuation multiple on either revenues or profit increases – however the multiple is not an input value, it is a resultant outcome from the more detailed assessment of the risks a particular book of business represents. The only use of these multiples is in making comparisons (“Comparables”) with known sales. Practice valuation is the key factor for the success of an acquisition. It has to represent fair value to the seller, but more importantly, it cannot be allowed to create an unmanageable debt service cost. If the debt owed to the seller causes an earn-out to collapse, the seller suffers as much as the buyer. It is much better to set a price that creates a manageable debt and then add a “Success Bonus” to the seller, if the firm exceeds the projected cash flow goals, but even this is not an absolute rule of thumb.

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Valuation Example – Business Model Impact 2009

2010

2011

2012

Annuity

$ 800,000

$1,000,000

$ 900,000

$1,100,000

$1,133,000

Insurance

$ 250,000

$ 400,000

$ 200,000

$ 280,000

$ 288,400

Other

$

$

$

$

$

Total Revenue

$1,070,000

$1,420,000

$1,120,000

$1,400,000

$1,442,000

Marketing

$

$

$

$

$

Total Overhead

$ 550,000

$ 550,000

$ 550,000

$ 550,000

$ 550,000

Payroll

$ 350,000

$ 350,000

$ 350,000

$ 350,000

$ 350,000

Total Revenue Total Expenses

$ $1,070,000 950,000

$ $1,420,000 950,000

$ $1,120,000 950,000

$ $1,400,000 950,000

$ $1,442,000 950,000

50,000 $ $120,000

50,000 $ $470,000

50,000 $ $170,000

50,000 $ $450,000

50,000 $ $492,000



2013 *

Revenues

20,000

20,000

20,000

20,000

20,000

Expenses

Page 9

Expenses Marketing Income Total Overhead Payroll Total Expenses

50,000

50,000

50,000

50,000

Advantage Compendium

$ 550,000 $ 350,000 $ 950,000

$ 550,000 $ 350,000 $ 950,000

$ 550,000 $ 350,000 $ 950,000

$ 550,000 $ 350,000 $ 950,000

50,000

Fall 2012

$ 550,000 $ 350,000 $ 950,000

* Projected 3% Growth Rate

120,000scenarios $ 470,000 $ of 170,000 450,000 $ 492,000 Not Income All Revenue is Alike:$ Different affect the risk getting the$revenue and thus the value *  Projected 3%#1: Growth Rate Scenario Business Model Revenues – 100% non-recurring, all from new sales [Maximum risk to

buyer; no sales, no income.]

Not All Revenue is Alike: Different scenarios affect the risk of getting the revenue and thus the value

 Scenario #2: Business Model Revenues – 50/50 split recurring/non-recurring income [Less risk for buyer  since Scenario Business Model though Revenues – 100% some#1: income continues trails, etc] non-recurring, all from new sales [Maximum risk to buyer; no sales, no income.]

 Scenario #3: Business Model Revenues – 100% recurring income [Least risk for buyer] 

Scenario #2: Business Model Revenues – 50/50 split recurring/non-recurring income [Less risk for buyer since come income continues though trails, etc]



Scenario #3: Business Model Revenues – 100% recurring income [Least risk for buyer]

Discount Business Multiple of Factor/Risk RevenuesMultiple of Discount Value Business Factor/Risk

Value

30%

$1,466,692

Scenario Scenario#1#1

40%40% $1,057,044 0.73 $1,057,044

Scenario #2 Scenario #3

30%20% $1,466,692 1.02 $2,391,503

Scenario #3

20%

Scenario #2

$2,391,503

Revenues 0.73 1.02 1.66

1.66

The lower risk ofrisk not of getting the revenue the lower discount factor factor applied to the The the lower the not getting the revenue thethe lower the discount revenue. The lower the discount factor the higher the valuation and the applied to the revenue. The lower the discount factor the higher theconsequently valuation and multiple on the revenues the firm generates. consequently the multiple on the revenues the firm generates.

Purely Hypothetical Examples: The business is expected to generate revenues of $1,442,000 next year, but where do those revenues come from? If the revenues are all created by new future sales (Scenario #1) there is a 2013_0108_Publication_AnnuityResearchQuarterlyQ42012 Research Quarterly | 4th Quarter 2012 risk that the revenue producersNAFA mayAnnuity do less business next year because a competitor has an | 8 | exclusive on a new product or the economy experiences a downturn. Due to the uncertainty this

Purely Hypothetical Examples:

The business is expected to generate revenues of $1,442,000 next year, but where do those revenues come from? If the revenues are all created by new future sales (Scenario #1) there is a risk that the revenue producers may do less business next year because a competitor has an exclusive on a new product or the economy experiences a downturn. Due to the uncertainty this revenue is heavily discounted and the business sells at a lower multiple of revenues. In Scenario 2 there is a mix of revenues with half of them coming from new sales and the other half coming from trailing commission, advisory fees, recurring commissions earned from previously sold flexible premium annuities or life insurance, etc. Since there is less risk to the income being lost the discount applied to total revenues is lower and the multiplier of revenues is higher resulting in a higher valuation. In Scenario 3 all of the revenues are earned from business already on the books. Although sources of revenue could depart, the business is not dependent upon new sales to provide cash flow and so this valuation has the highest multiplier of revenues and the lowest discount rate. Each scenario starts with the revenues and the expenses, but the value of the business differs by over a million dollars depending upon how the revenue comes in. It should be noted that the discount factor and revenue multiplier is completely hypothetical and should not be used as rules of thumb. It is more complicated than that. The valuation of the business is not a simple matter of using some multiple of net income or gross revenues, instead it is a balance of many facets of the business, but the major contributors to the price the business will fetch are the Cash Flow being purchased and the risk of that cash flow continuing. That risk, or Discount Factor, also takes into account how the purchase of the business will be financed (debt expense), the return on alternative investments (risk free rates of return) and the probability that the business will suffer an interruption of revenues or not even not survive the transition from seller to buyer. It’s not just getting the valuation multiples right. For a successful acquisition the buyer needs to retain both the clients and key employees of the seller, make economies of scale work, and ensure the cultures of the acquired and acquiring companies mesh. Providing seller finance for an acquisition is a commendable first step, but implementing the transition is complex and the mechanics of the process are not well established – there aren’t any “IMO/Agency Valuation & Financing For Dummies” books out there. The typical structure of these transactions is an earn-out where the debt owed to the seller is serviced from the cash flow of the acquired entity. Funds may also come from added profit due to economies of scale in the combined operations. The success of earn-outs is based on the assumption that the cash flow shown in the seller’s prospectus will be available to the buyer. This further assumes that the buyer will be able to retain the clients of the seller and that key staff remains in place. The buyer often assumes there will be certain efficiencies resulting from back-room operation consolidation. Finally, the product mix of the seller and buyer need to gel, the cultures of the two entities need to fit together, and the seller needs to be available to help with the transition. Few acquisitions go 6 for 6. Any drop in productivity and profit strains the ability to service the debt to the seller. In an acquisition debt payments will take priority over marketing and the buyer has to decide where the marketing funds needed to exploit the larger client base will come from; usually they come from the buyer’s pocket. Example Of A Failed Divestiture A seller presents their operation as an exceptional opportunity whose full value will be realized with access to additional resources. An enthusiastic buyer with significant cash resources swept away by the seller’s

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story agrees to the seller’s valuation without performing stress tested cash flow projections (seeing what the cash flow would be under different economic scenarios). A five year earn-out deal is signed where the seller receives a share of the revenues over the next five years). However, at the end of the first year the buyer cannot service the earn-out because the enhanced revenues haven’t materialized. The seller accuses the buyer of incompetence in growing the business. The buyer charges that the seller exaggerated the opportunity. The case goes to court. While this is going on clients migrate away from the firm, making any resolution next to impossible. In addition to the buyer and the seller, losers include clients and employees. Wealth is destroyed. The moral is too high a valuation did not wind up benefiting the seller, but instead hurt everyone involved. And A Successful One A seller presents a firm for sale with an asking price based upon a “vanilla” industry multiple of gross revenues. Analysis shows that cash flow projections for the combined operations would not support the debt service on the valuation price. But the candidate buyer is an excellent match philosophically to the seller and there is a culture fit between the companies. The buyer submits a discounted cash flow valuation that is 20% below the multiple on current gross revenues, but he agrees to accommodate the seller’s preference for a shorter engagement period through the transition with most of his participation being from a new home in Florida. The sale is executed with goodwill on both sides resulting in a 93% client retention rate. The moral is that a high valuation is not necessarily a benefit to the seller in an earn-out sale. Both the seller and the buyer need to prepare themselves for the transaction. Cash flow is king and accommodation from both parties is the key to a satisfactory outcome.

What Can Be Done To Increase Value

Calculating the discounted cash flow of the various lines of business and revenue streams and adding them together provide a valuation, but different products and revenues have different discount rates. Here are two ways to add value.  We’ve already stated that cash flow produced by trailing commissions/overrides requires less of a discount than cash flow produced by new sales. If most or all of your current revenues come from new sales the strong implication is that you should increase the sales of products that pay ongoing revenues because this enhances the value and salability of your business.  We’ve also shown that investment advisory firms sell at higher multiples than insurance agencies. If you have an advisory business increasing the assets under management will increase the value of the entire business. If you don’t have an advisory business it may make sense to acquire one.

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Page 12

Advantage Compendium

Fall 2012

Cross Practice (Insurance/Investment) Acquisitions

The consolidation trend could benefit from some cross practice mergers. Insurance products and investment products cross paths in many markets. Synergy can be created by the combination of insurance and advisory/ investment services. An agency that offers a full spectrum of financial services, with equal expertise across all products, simplifies the client’s life and adds value to agency. The IMO that enables one stop shopping for an agent by offering risk management, wealth generation, risk mitigation and retirement services builds a tighter relationship and will capture more of the agent’s business. This builds revenues today and divestiture value tomorrow.

Summary

The financial services industry is in a transition that affects the large companies that support the industry, and all independent practice owners. The change is driven by the demographics of the agents and those of new entrants to this career. It is a relatively slow transition, happening over years and not months, and the pace has stepped up over the last three years. This paper is offered as an alert to anyone who has not noticed the shift, and as a prompt for both the support companies and the agents to take action to minimize disruption in the industry. Change creates both gains and losses. As always those who recognize opportunity in chaos will thrive. Others may not. 2013_0108_Publication_AnnuityResearchQuarterlyQ42012

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About the authors

Allen Duck is an engineer, and entrepreneur. He has served European and American companies in international sales and marketing. He founded and sold a US based machinery distribution company and has participated in the acquisition and divestiture of companies, including several financial planning firms. Allen is the author of “Successful Financial Planners” and co-author of “Get Out Alive!” a guidebook on the business exit process, and “You Can Take It With You!” a guidebook on business valuation. [email protected]

(970) 412-6759

David Cunningham is a six time company co-founder in medical device, biotechnology and software industries. He has consulted on M&A projects for international medical device companies. David is co-author of “Get Out Alive!” a guidebook on the business exit process, and “You Can Take It With You!” a guidebook on business valuation. [email protected]

(970) 988-4080

About Eighty20 Advisors LLC. We provide the Financial Services community with a marketplace for Practice Acquisition/Divestiture and Recruiting, plus Practice Management Consultation, and industry related publications. The issue of the changes affecting the industry can be broken into two topic areas, Preparation and Execution. Eighty20 Advisors LLC deals with the issues of Practice management, Acquisition/Divestiture preparation, and Deal Management. Our website offers access to publications on valuation, succession and Financial Services success stories, as well as papers we publish periodically. www.Eighty20Advisors.com Eighty20Exchange™ deals specifically with Business brokerage, Recruiting of reps, agents and employees as well as providing a portal for University graduates to connect with their future employers. www. Eighty20Exchange.com Eighty20 Advisors serves the industry and believes that the future will bring a greater emphasis to multidisciplined organizations focused on the client experience being enhanced through working with a single firm.

Copyright 2012 NAFA. Reproduction is not permitted without written permission of editor. We do not provide investment, tax or legal advice. Information believed accurate, but is not warranted.

2013_0108_Publication_AnnuityResearchQuarterlyQ42012

NAFA Annuity Research Quarterly | 4th Quarter 2012 | 12 |

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