Succession planning among insurance advisors — who spend their days telling their individual and owner-manager clients how to plan for the future — is shockingly almost non-existent, industry veterans say.

Considering the aging population of insurance advisors in Canada, says Dennis Caponi, president of D.S. Caponi Insurance Agency Ltd. in Etobicoke, Ont., “It’s a big problem. They’re putting their heads in the sand. They think they are going to live forever.”

Peter Wouters, national director of tax and estate planning at the Kingston, Ont.-based Empire Financial Group, agrees: “A woefully small percentage of advisors do any planning.”

The most important succession planning step an insurance advisor can take is obtaining a proper valuation of the business so that survivors will benefit by receiving the best price for it.

Upon the advisor’s death, his or her executor will have to deal with this question right away, says Caponi. If the deceased had an office with dependable staff, he says, the process could be easier. But if the advisor had worked alone for many years and had several hundred clients, the job would be much harder.

Unless a succession plan is in place, one risk is that a surviving spouse would be approached by several advisors in the community looking to buy the business and trying to edge out competition, says Caponi: “The spouse may have never been in the business and will have no idea what to do.”

An unlicensed spouse would not have the legal authority to deal with the business. Therefore, another advisor would have to be brought in at some point. Advisors should take it upon themselves to choose someone to handle business issues, says Caponi.

If someone does not take charge quickly, he warns, clients might contact their insurance and/or mutual fund companies, which could start referring clients to other advisors in the area. This would erode the value of the business and the survivors’ inheritance.

Wouters and Caponi both say insurance advisors should establish a purchase-and-sale agreement with a colleague or any children that are active in the business.

It’s inevitable, says Wouters, that an advisor’s business will be sold at some point — whether the advisor is healthy, critically ill or dead. The best price for the business will probably be obtained when the advisor is alive and well, he adds.

Caponi provides his own arrangement as an example. He, his wife and his son (who is also in the business) have equal shares in the business.

If Caponi’s wife predeceases him, he will get her share. When he dies, the value of his and his wife’s shares will be split among his three children, and his son will get the business for free.

To facilitate this transaction — whether Caponi dies before or after his wife — the son has taken out an insurance policy on Caponi that will pay for the shares now owned by Caponi and his wife. Meanwhile, Caponi has an insurance policy on his son’s life to buy his son’s share, should his son predecease him, in order to pay out his daughter-in-law in that event.

Establishing this kind of agreement will require scrutiny of the advisor’s business. Does it consist of life and health policies, group business or mutual fund clients? What trailer fees and renewals will be coming in?

“You have to come up with a formula that is agreeable to both parties,” says Caponi.

It may not always be possible to insure the life of an older advisor, he adds. It may be necessary to set up the agreement so that the younger advisor takes over the business by making payments over four or five years.

For example, the younger advisor and the surviving family could split the trailer and renewal fees on a 50/50 basis for two or three years; after that, the business could change hands.

These steps will make transferring the business much easier. The assets will pass outside the advisor’s estate. This can be achieved by writing a separate will dealing solely with the company, says Rachel Blumenfeld, an estates lawyer and associate in the Toronto office of Miller Thomson LLP.

The use of multiple wills is a fairly standard practice for owner-manager clients, she says. IE