Heirs to the Throne

Three years ago, the Insurance Institute of Canada published a demographic research study suggesting a looming leadership crisis in the property and casualty insurance industry. The report outlined an urgent need for succession planning in several key occupations, including the broker industry.

Citing 2007 statistics, the report noted the number of workers in the Baby Boomer age category, people born between 1946 and 1963, is proportionally larger than in the Canadian labour force as a whole. And while almost a third of the broker force is in line to retire in the next 10 years, there aren’t enough people warming up in the on-deck circle to replace them. “Assuming that the under-45 age group is the immediate feeder group to management, there is less than one worker under the age of 45 for every manager currently in the industry’s work force,” the report notes. Simply put: “There are not enough entrants to replace those exiting [the industry].”

And so how do young, bright, upwardly mobile brokers go from storming the Bastille to becoming pinnacles of the establishment as broker owners and principals? Also, assuming a career path to ownership is necessary for maintaining the integrity of the broker channel, what do young brokers feel they need to take that daunting step into the upper echelons of broker ownership? Or to put it another way: How does the ‘Old Guard’ become the ‘New Guard’?

Handing over the Keys to the Family Brokerage

Traditionally, the tried-and-true broker succession plan has been for the retiring senior principal to hand the reins over to the son or daughter. This type of ownership transition is still very much a factor today.

“Certainly there are some advantages (to growing up in a family-owned brokerage business),” says Ryan Mitchell of Mitchell Sandham Insurance Brokers in Ontario. “I had the instant trust of the owner of the brokerage, my father. He put a lot of trust in me and delegated a lot of different things to me that probably I wouldn’t have seen at such an early stage of my career.”

Also, Mitchell observed, it was easier for him as a son to step forward and communicate to his father that he wanted to become an owner. “If I didn’t show that interest, or handle that network he gave me, it probably would have been a different outcome.”

Victoria Stanhope, 26, credits her father, Victor Stanhope, 66, principal of Stanhope Simpson Insurance Ltd. in Nova Scotia, for getting her into the insurance business in the first place.

She recalls having dinner with him after obtaining her undergraduate degree in Psychology. He asked her what she wanted to do, and when she said she wasn’t sure, he asked: “Why don’t you try insurance?”

After starting her young career underwriting and quoting for an insurance company, she moved over to the brokerage side of the business. Victoria Stanhope said she and her father are now starting to discuss succession; the general plan is for her to assume some ownership of the business in the future. She finds the prospect somewhat daunting.

“I’m 26, my father is 66, so there is a whole lifetime between us,” Victoria Stanhope says. “My weakness would be my lack of experience. I’m trying to do everything I can to close that gap…. I’ve been a sponge trying to soak up as much knowledge as quickly as possible.”

Mitchell notes there is a lot to learn. “The biggest (thing you need to know) is just the general operations of a business,” he says. “And then when you break it down from that, it’s just having a good understanding of all aspects of a business — clientele, HR staff, finance and accounting. IT and technology is becoming a huge component of the brokerage, so you have to make sure you have an understanding of the implications of that.” In addition, broker owners need to know the regulatory guidelines around running the business, including the rules on reporting and trust accounts.

A key to any good succession plan is to allow young potential brokerage owners to learn all of this at a pace that facilitates a gradual transfer of ownership, as opposed to a sudden cliff-dive. “The biggest (thing to work out) is the phase-out,” Mitchell says. “You want to be working into ownership slowly, so it’s not just a case of: Day 1, owner is here. Day 2, owner is not here.”

Within companies, the issue becomes more complex, in part because talent is not necessarily selected and groomed in the same linear fashion as in a family business. Or to put it another way, there isn’t always a readily identifiable ‘heir to the throne.’

Gloria Corkum is a branch manager of Western Financial Group in Alberta. When she discusses succession planning, she sees it in terms of recruiting talent for management. And that is a fluid process, she notes.

“For me, I think I might be like other people,” she says. “In my situation, you get connected to a group of people you work with. Essentially, you want to have someone come up and into the ranks to replace you within your company or within your branch. And I think sometimes you pick the best candidate you have within that group of people, but I’m not necessarily sure it’s the best person for the job. Then again, if you go outside of that group of people, how do you recruit the talent that you need?”

What happens, for example, if the person best suited for the managerial role is older than the manager they replace? Also, what happens, as in Corkum’s situation, when a company’s ownership has just changed hands after an acquisition? “The direction of our company is changing,” she notes. “So maybe the person who might have been suited for a management role two years ago may not necessarily be suitable for the role for the next two years.”

Let’s Make a Deal

When brokers do not have any offspring willing or available to take over the ownership of the brokerage, one popular exit strategy is to sell the business. This approach is controversial. Publicly, brokers acknowledge owners of independent brokerages can do whatever they want with their business. And yet many believe the prospect of selling the brokerage to insurers or financial institutions, for example, dilutes the independence of the brokerage. This speaks to the importance of having a succession strategy in the first place. “I think that’s why you see so many acquisitions and buyouts [of independent brokerages] by insurance companies,” Corkum says. “It’s a lack of succession planning.”

Selling a brokerage to an insurer is not the only option, nor is it the most popular option. Brokers can of course sell their brokerages to other independent brokerages. When when this happens, one big question is how involved the selling owner plans to be within the buying brokerage’s operation, says John Hubbard, owner of Hubbard Insurance Brokers in Mississauga, Ontario. “Independent business people [selling a brokerage] need to ask themselves: ‘What do I want? Do I want to be part of the business, or do I just want a cheque and get out?’ Because those are totally different approaches.”

From the perspective of the buying brokerage, a number of practical questions arise, Hubbard says. “Ideally, that person [selling the brokerage] comes along with the book of business, so that’s something you want to establish up front,” he says. “There are key staff members you want to incorporate, to make sure that your retention [of new clients] is as good as possible. You want to look at their book and ask: ‘Will it retain? Will I keep it? And how do I keep it?’”

Hubbard and the other brokers interviewed for this story speak to th
e need for more structured mentorship programs around the issue of succession. Hubbard says people would be surprised at how often brokers simply “wing it,” essentially not having any formal structures or materials in place to help to train others involved in similar deals. With respect to closing a deal, a mentor would be able to engage in a detailed discussion about practical details, Hubbard says. “I’d love just to call up someone in that mentor-type role and say: ‘How many introduction letters do you do? How do you provide your clients with information [about the sale]? Who gets a phone call introducing the new owners, versus just a mail-out?’ Just to give you some tips on what’s been successful, how to maintain the retention rate of that book of business [the brokerage just bought]. Those kinds of soft skills.”