Father and Son: Timing Is Critical in Internal Agency Perpetuation

Timing is everything.

That statement could apply to many things in life but when it comes to transferring insurance agency ownership from one family member to another the timeframe is critical, according to a father and son who have executed a successful perpetuation.

It took nearly eight years for Ed Higgins to finally hand over leadership of his agency, Thousand Islands Insurance Agency in Clayton, N.Y., to his son Brendan. But the time it took to work out many of the challenges inherent in such a transaction has paid off, Ed and Brendan both say.

“I don’t think that the written plan is as important as the timeframe is. We found the timeframe was our important piece,” Ed Higgins told Peter van Aartrijk and Rick Morgan in an “On Point” podcast for Insurance Journal.

“Not that a plan isn’t important, but the most important thing is not to wait until you don’t have enough time to execute a plan. We thought we would execute in five years, and it took us closer to eight years to execute,” Ed said during the podcast, “Agency Perpetuation Done Right: Dad’s View.”

It took time to for Brendan to feel comfortable with the idea of leaving the well-paying insurance company job that he enjoyed to take a chance on the uncertainties of business ownership. His compensation, an agency valuation and preparation for day-to-day agency management were among the details that had to be worked through, as well.

It’s important to put the difficult things on the table first and work through them going in, Brendan said during a separate podcast with van Aartrijk and Morgan, “Agency Perpetuation Done Right: Son’s Perspective.”

“A lot of the reasons our transition went very well is because my father and I came to the table with a number of core agreements going in,” Brendan said.

For instance, when it came to compensation, “my father and I had an agreement that anything I produced on my own, even if it was as a result of another relationship he might have had, if I went out there and actively solicited something, then I would own that book of business.

“I wouldn’t be responsible for paying for that book of business three or four years down the road, when I actually bought the business. No producer wants to go out and hustle and sell business, only to have to turn around and buy that business that he worked so hard or she worked so hard for, back,” Brendan said.

The Higginses were also able to pass over any possible agency valuation sticking points early on because they both realized coming into the deal that an internal perpetuation is not going to generate as much money for the seller that an external sale would.

“If you want top dollar for your agency as a selling price, you’re not going to get that from internal perpetuation. My father and I went into the sale process knowing that,” Brendan said. “If you can iron out some of those points that are going to points of disagreement early on, there will be a much better chance of success. When it came time for the evaluation and actually moving forward with the transaction, three to four years into my arrival, there wasn’t this major disconnect between what the owner thought the agreement was going to be and what the next generation, myself, was expecting.”

Even given sufficient time and pre-agreed-upon expectations, the transition didn’t always go smoothly between the two.

“It certainly challenged us,” Ed said of those times of disagreement.

“We had probably three or four significant collisions, where we wouldn’t speak for three or four days with each other. Then we finally come back and go like, ‘OK, let’s make up here, because you know what, we’re in this for the long term,’” he said.

Coming into the agency, Brendan had a strong technical knowledge of the insurance business from a company point of view but he soon found out that selling insurance on a retail basis was an entirely different animal.

“My background was in the insurance company operations. When I came to the agency, I thought I knew a lot about the insurance business,” Brendan said.

But he admits he really didn’t understand what it meant to sell to a retail client. “If you’re an underwriter or a marketing rep selling to agents using company products, that’s an entirely different sale. Even though it’s very closely related to the insurance agency distribution channel, that’s an entirely different sale than going out and finding retail customers. That was an abrupt and rude awakening,” he said.

Ed, who has 40 years of sales experience, said his son today is an effective producer but acknowledged that they “worked on those skills over time.”

The headaches, disagreements and hard work were well worth it, both Ed and Brendan said. The fact is the two enjoy being able to work together.

Brendan said he made the leap for a couple of reasons. One was to have more direct control over his career and the other was just the opportunity to work for his father. “We are very close, and I didn’t want to see the family business go to somebody else, especially since I had an interest in the business,” he said.

Ed said the ability to interact on a daily basis with his son and his daughter, who has also joined the agency, “is a real, personally valuable thing to both me and my wife.”

Still he has pledged not to be that guy who stays with the company just to have a place to go every day. “As long as I’m here, I’ll be an active worker, and I’ll be making a contribution,” Ed said.

“What’s exciting now is to be at this end of it and realize that I could walk out of here and he’d do fine. He wouldn’t miss me, which is the proof of a good transition,” Ed added.

Article written by Stephanie Jones
Originally appeared in insurancejournal.com