Exclusivefocus Spring 2013 - National Association of Professional ...

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If you are a successful agency owner who’s had a good relationship with Allstate, good for you. Unfortunately, the vast majority of agents don’t share your experience. I write this note to all of you current and prospective Allstate agents for one purpose—to remind you that you don’t and will never own anything. You will not be entitled to rights that are generally afforded to most other “independent contractors.” I purchased a book of business in Wisconsin in October of 2007, right before the great recession. As consumers became more price sensitive, I began losing clients and it became more difficult to replace them. Six months into operating the agency, my corporate partner came to my office to tell me, “You’ve tried marketing your way, now you have to do it our way.” Pardon me That didn’t sound like a partnership to me; it sounded more like a master/slave relationship. It certainly wasn’t how I learned to partner with independent contractors in the financial services industry to help them become successful. It was shortly after this meeting that I first learned about “Expected Results” – now called “Agency Business Objectives” – and the consequences of not meeting them. On my birthday, with tears in my eyes, I explained to my wife that I may have made a mistake by buying an Allstate agency. I explained that the 100% leverage using our property assets could be in jeopardy. I told her I had recently learned from NAPAA that I could lose the agency for failing to meet my P&C or securities production requirements. This concept stunned me. My previous work with a nationally recognized financial planning company taught me that there are no production requirements for independent feature Lessons Learned By Mike Handrick contractors because imposing them would violate well-established government rules regarding worker classification. I was told none of this by Allstate; I had to learn it all on my own. I take full responsibility for not conducting my due diligence before buying the agency. I wrongly assumed that Allstate was a large company that had figured out the independent contractor model. After all, they had converted their agency force to “independent contractor” status in the year 2000. But I was wrong – dead wrong. There was another agent in town who was ready to retire, but I was told I did not qualify to buy his book of business because of my Expected Results. However, they then permitted an outside buyer – with no experience in financial services – to buy his agency and agreed to let him buy mine too. They also allowed him to combine them into one agency. This defies logic and confirmed that I was hitched to a leaderless company. It was clear that I had to find an exit strategy. I was also told I was “required” to attend meetings. Really What part of “independent contractor” didn’t company leadership understand, and why was it that many top producers in the region didn’t attend Did the mandatory attendance requirement extend to them or not Why were there nine corporate people at these meetings and 11 agents How come only two corporate people spoke during the meetings Why were we paying the other seven to be there The only other time I witnessed such waste was working for the federal government. As time wore on, Allstate continued to change the rules for purchasing books of business: More liquid cash reserves, requirements to hire more producers and as always, final approval by Allstate. That’s why I say that Allstate agents don’t own anything. You might as well own another vehicle. It looks pretty when you first get it, but the shine wears off quickly. Then it begins to depreciate in value and there is nothing you can do about it. Allstate has failed in creating a management culture that serves its independent contractor agents. The company saves millions each year by not having to pay employee expenses. The problem is that they forgot to dispense with their manager/slave management culture and the managers who continue to adhere to it. They simply don’t get it, and it is apparent to me that they never will until the board and CEO are replaced. Any plumber will tell you that “stuff ” flows downhill. It’s really a shame that such a highly recognizable name like Allstate is being destroyed by its Machiavellian-style leadership team. If you have noticed that your stress level has risen and you are having bad dreams that involve death and murder, or if you spend inordinate amounts of time thinking about how and where to hide bodies, it may be time to re-examine what you think you own as an Allstate agent. On January 1, 2011, I began as a true independent contractor insurance agent. In July of 2011, I merged my independent agency with a major financial planning practice in Central Wisconsin. I’ve returned to my financial planning roots by completing my professional designations. We are successfully operating a financial planning shop that also handles personal insurance. You can’t operate an Allstate Insurance agency and launch financial services from it. The public does not believe they can get quality financial planning help from a P&C shop. It may sound like a decent business model, but it won’t work. If Allstate was smart, they would drop the securities business and focus on their core competencies of insurance and protection products. For those Allstate agency owners who remain, I wish you nothing but the very best. As for me, the future is bright. At the success rate I am having, the $150,000 loss – associated with my three-year buying and selling experience as an Allstate agency owner – will be gone in 24 months. And I’m one of the lucky ones. What is your exit strategy Ef 26 — Exclusivefocus Spring 2013
uying and selling Seller Transparency: the Threshold of Acquisitions By Rick Dennen In our business, we talk a lot about the importance of due diligence before the acquisition of a business or book of business. From white papers to articles to webinars, we try to educate agency principals with the hope of preventing acquisition failures. Just when we fear we’re starting to sound like a broken record, we hear another first-hand account of a deal gone bad, affirming the need for this education. Recently, we received a message from an agency principal who read one of our articles several weeks too late. He purchased another agency without conducting appropriate due diligence and now is stuck with a poorly performing agency. He felt the due diligence steps we recommended were unrealistic because sellers, as a general rule, are not in the practice of making information available to potential buyers — at least not the seller he encountered. He was partially right. A thorough due diligence process is unrealistic in transactions with sellers who refuse to be transparent. Just as it would be unwise to buy a house without an inspection, acquiring a business without detailed insight into its financials and operations is a dangerous and risky endeavor. Transparency by the seller must be the first condition that’s satisfied before any other steps are made towards a purchase. A seller who is reluctant to share information is waving a huge red flag, warning you to take a step back and rethink your decision to pursue an acquisition. Without proper due diligence, it’s impossible to predict future returns on your investment because you can’t accurately estimate retention levels for customers, employees and contracts. You won’t know who key customers are, their premium revenue or their loyalty to the agency. Without policy detail and history, you won’t be able to forecast the future performance of the book. While this is crucial when purchasing an independent agency book of business, it also applies to captive agents, especially those with brokered books that will be included in the sale. No insight into carrier contracts provides no means to verify commissions and no guarantee of transferability. Perhaps even worse, you’ll be in the dark about employee morale and which producers might leave and take valuable customers with them. Many sellers are reluctant to disclose details because they view it as a risk. Potential buyers, after all, are often competitors. At the same time, buyers assume transparency isn’t an option because of the seller’s perception of risk. As a result, they don’t even ask for appropriate information. In truth, the exchange of sensitive information is critical to the success of the acquisition. In addition, sellers sometimes commit to transparency, but later block access to vital information and avoid or discourage meetings. Suspicious actions like these should warn buyers that something may be wrong and it may be best to walk away. The solution to all of this is for the parties to sign a nondisclosure agreement (NDA) or confidentiality agreement. NDAs give potential buyers access to the information they need in order to conduct proper due diligence while also protecting the seller from a buyer’s misuse or sharing of confidential information and the solicitation of the seller’s customers and employees. The simple lesson here is an important one. If an agency owner refuses to be transparent, they may have something to hide and buyers should consider walking away from the deal. Without seller transparency, it’s impossible to know what you’re buying and that is a recipe for disaster. Ef Rick Dennen is president and CEO of Oak Street Funding, which provides commission-based lending for insurance agents that need capital to buy, build or sell their agency. Dennen is a licensed agent in the state of Indiana for Life, Accident & Health products and a licensed Certified Public Accountant in the state of Indiana. In addition, he is an instructor of venture capital and entrepreneurial finance at the Indiana University Kelly School of Business. He can be reached at rick.dennen@oakstreetfunding.com. The materials in this article are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. Spring 2013 Exclusivefocus — 27
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Page 3 and 4: L APPROVAL We’re lending to Allst
Page 5 and 6: Grow your business. Hear what our a
Page 7 and 8: “Is your agency planted in good s
Page 9 and 10: INDEPENDENCE IS A CHOICE • Put Yo
Page 11 and 12: Spring 2013 Exclusivefocus — 11
Page 13 and 14: a compelling speech about staying p
Page 15 and 16: fice in order to attend company mee
Page 17 and 18: will be increased if there are more
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Page 23 and 24: This Is For 25 Fast Acting, Lucky A
Page 25: The Ki ndness Revol uti on Welcome
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Page 31 and 32: Break the Shackles... Get EXCITED A
Page 33 and 34: to maintain the tax deferred status
Page 35 and 36: challenge is to identify homeowners
Page 37 and 38: feature The Saboteurs By Dave Thorp
Page 39 and 40: sales and marketing Should Your Age
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Page 45 and 46: ful, would have been less problemat
Page 47 and 48: DirectWriter magazine, the forerunn
Page 49 and 50: READY. AIM. SUCCEED. Right on targe
Page 51 and 52: Confidential NAPAA Membership Appli
Page 53 and 54: the NAPAA market place Agencies for
Page 55: Insurance Professionals: IS IT TIME

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