With financial advisors’ well-known reputation for delaying personal business succession plans, some managing general agencies (MGAs) are stepping in to ensure that clients have ongoing service and estates can be wrapped up quickly in the event an advisor suddenly passes away.

Earlier this year, coach and author George Hartman told a meeting of the Canadian Association of Independent Life Brokerage Agencies (CAILBA) that only about 10% of financial advisors have a succession plan that outlines who will take over their business, when that will occur and how. Another 38% are thinking about it and more than half have no business succession plan at all.

With those kinds of statistics, Qualified Financial Services (QFS) is trying to make sure that talking about succession planning is first and foremost in young advisors’ minds. “The role of the MGA is to discuss succession planning long before succession planning should be on an advisor’s mind,” says CEO Kevin Cott. “We hold succession planning events for advisors who are 35-40, not 65-70. We believe the time to do succession planning is when you don’t have to.”

QFS also helps identify younger advisors in the business that can act as an in-house solution to the advisor’s succession plan. It then helps them meet with their more mature counterparts in hopes that the two may form a partnership and be provided with options for the future, says Cott.

QFS also has an agreement with advisors who do not have a buy-sell agreement in place that if they die, become disabled or retire, the MGA will buy the block of business from the advisor or the estate.

Cott says QFS has purchased 15-20 blocks of business over the years, with the earliest bought about 18 years ago. Three different blocks of business have been purchased from advisors just this year, he says.

For about the past year, HUB Financial Inc. has been actively advising its financial planners to put a buy-sell agreement in place, with HUB the temporary buyer, until they get a more ideal estate plan set up, says Tony Bosch, HUB’s executive vice president, broker development.

Buy-sell agreement

“It’s not our goal to buy the block of business,” says Bosch. “Our goal is for the advisor to put together the ideal succession plan…bring in maybe a junior advisor or partner with another advisor of different skill sets to hopefully grow and build the block while they are transitioning – that is the ideal. But while they are working through that, we at least need this buy-sell agreement in place.”

He says there have been situations when advisors have died suddenly and their widow or widower has come to the MGA asking for the value of the deceased spouse’s book of business and how to go about selling it. The MGA is not the agent of record, nor is it the new owner of the book, says Bosch.

In the meantime, some clients may immediately begin the search for a new advisor and some advisors may be motivated to go after the more profitable accounts of the first advisor. “How much of a value will your estate get [if nothing is done]? Not much.”

He says advisors should be more responsible to ensure they have an agreement in place. “If not, it’s not a great situation for anybody.”

Only advisors that have all their contracts with HUB can take advantage of this offer, says Bosch, and HUB gets to vet the block of business ahead of time to make sure it’s comfortable with the advisor’s book.

Non-binding agreement

The time to think about a succession plan is not when the advisor is ready to retire, says Paul Brown, chairman and CEO at IDC WIN.

“The longer advisors wait, the more they put the value of the business at risk,” agrees Brown. “Clients may leave. I think it’s prudent to move forward.”

Brown says IDC WIN has a succession planning platform in place in which it will enter into a non-binding agreement with an advisor. Should the advisor suddenly die, the MGA would buy their book from their estate.

“Generally speaking, an executor or spouse will not be able to deal with the complexity of the business or the renewals and usually want to get paid out. It’s like an insurance policy for the advisor’s book.”

As an increasing number of baby boomer advisors age, the chances of someone suddenly dying increases, making succession planning a top-of-the-list issue, says Brown.

He encourages advisors who do business with IDC WIN to have some sort of plan in place: at a minimum, a buy-sell agreement with the MGA. “It’s not fair to the estate otherwise.”

Insurers’ rules

Insurance companies have different rules as to what happens to the book of a financial advisor who suddenly passes away, becomes disabled or retires without a buy-sell agreement in place:

Canada Life

No commissions are paid to the estate for blocks of business that include cases sold after 1998. However, the estate can sell the ongoing commissions for that business to an advisor who is licensed, has errors and omissions insurance and is contracted with Canada Life. When a block is sold, commissions are paid to the buying advisor, says Phil Marsillo, senior vice-president, Individual Distribution, Canada Life. 

The insurer works with the executor of the advisor’s estate and the advisor’s MGA to find an advisor to service the book of business.   

To ensure ongoing service to the client, if a buy-sell agreement is not in place, Canada Life will make the MGA the servicing advisor, which will then assign another advisor to clients, if they wish. Clients can always be serviced by the insurer’s Client Service Centre but can request another advisor at any time.

Marsillo says the insurer does not sell any books and has nothing to do with the valuation of a business. It will, however, provide reports to a potential purchasing advisor that outlines the book of business listing. 

With the MGA involved in the process, Marsillo doesn’t see the lack of buy-sell agreements as a major problem just yet.

“[However], we would encourage advisors to take the time to create transition plans in the event of their death to ensure that there is as little disruption as possible for their clients and the process is as smooth as possible for their estate,” he says.

Great-West Life and London Life

The two insurers strongly encourage advisors to have a buy-sell transition agreement in place in case of death or severe disability. Great-West and London Life say they work with the estate’s executor or power of attorney (POA) to figure out the best way to proceed with the advisor’s book.

Provincial regulators have different requirements on different issues, says Arlene McComish, vice-president, Advisor Business Development for Great-West Life and London Life. For example, the Alberta Securities Commission requires that clients be notified of the death of an advisor within seven business days for mutual fund business and that a replacement advisor be assigned within 14 days after the death of an advisor. This replacement could be temporary until the estate is settled.

For advisors without a buy-sell agreement on death or severe disability agreement, the onus for valuing the book of business is with the estate or POA and the buyer. The insurers recommend a certified business valuation expert be hired to help out.

McComish says the insurers actively encourage advisors to have strong emergency transition plans in place and to create clear directions for executors or POAs.

Manulife

Manulife will continue to pay commissions, including trailers, to an advisor’s estate, says a company spokesperson. At the same time, it asks that the business be moved to an active advisor for servicing.

Manulife works with the MGA to have the business assigned within the MGA’s ranks. If that can’t be accomplished, the insurer will select an advisor if and/or until a client finds another advisor.

One issue Manulife has had in the past with advisors who fail to have a buy-sell agreement in place is that it’s sometimes difficult to find a second advisor to take the block knowing they will not receive any compensation.

Sun Life

As part of its onboarding process and contracts, all dedicated Sun Life advisors must have a buy-sell agreement in place, says a company spokesperson. The insurance company says it has created a working group to look into advisor succession when it comes to third-party or independent advisors.

If a Sun Life advisor leaves the business, Sun Life takes on the responsibility to ensure there is another advisor for clients. It’s up to the MGA to look after moving clients to another advisor when it comes to third-party or independent advisors, says Sun Life.