How to Tell a Book of Gold from a Book of Coal

One of the key questions all advisors in the market for a book of business are wondering in one way or another is how to tell the difference between a book to avoid and a book that's worth buying.

This is the perfect question to pose to our friends, Cameron Jacox and James Hilton, managing partners at Jacox-Hilton Corporation and true experts when it comes to book valuation.

One of the biggest red flags for a "book of coal," Jacox says, is a book that has been churned and that has left unhappy clients with products that they've been pushed into. The advisor has not acted in his own interest or the interest of his clients in these cases because the business as such is not sustainable.

How to Maximize Your Return on Investment After Buying an Insurance Business

LSM Insurance and the book valuation experts at Jacox-Hilton Corporation have taken you through the purchase of a book of business, but the question becomes, "What do you do with the book once you have it?"

We asked Cameron Jacox and James Hilton, managing partners of Jacox-Hilton, to answer this question.

"As soon as the transaction is completed, the advisor who bought the book is now in the negative," says Hilton. "They're expecting their return on investment to come from the residual income and the new business. They're essentially buying a future revenue stream when they put down an up front investment. At this point, it's about whatever they can do to try and maximize that return on investment and get more money out of it."

Now is the time to not only take advantage of some of the opportunities indicated by the make-up of the book and start acting on them but also to start monetizing what is in front of you. This means running the business properly, utilizing technology such as a good CRM system, and Jacox-Hilton's advisorAssist in-force mining platform.

The Market for Life Insurance and Investment Books

If you are an advisor looking to buy or sell a book of business, the market for investment books determines whether or not you'll be able to find a book to buy at all or what you can expect to sell your book for.

This is why LSM Insurance has partnered with the book valuation experts at Jacox-Hilton Corporation. General partners, Cameron Jacox and James Hilton, told us what the market looks like these days if you're an advisor looking to buy or sell a book of business, as well as what has been happening in the market as of late.

"It has been largely a frozen market for a while because there's a huge gap between what buyers are willing to pay and what sellers are willing to sell at, so there are a lot of folks in their 60s and even into their 70s and 80s who are sitting on their book, not actively servicing their clients and just collecting their renewals," says Jacox. "This is a structural problem."

Luckily, he does see a bit of a silver lining on the horizon.

Using Valuation to Maximize the Sale

Valuation is an integral part of determining the value of a book of insurance business. Cameron Jacox and James Hilton, managing partners at Jacox-Hilton, a software and consulting services firm for life insurance advisors, will tell you that they conduct a book valuation based on five points of criteria:

Revenue

"This has to do with looking at component revenue streams," says Hilton.

"Primarily, that means recurring revenue streams, first-year commissions, and the trending over the course of your last five years. For example, if your business has seen declines recently then your book will be discounted for the perceived risk of a negative outlook."

Estate Planning: Valuing Your Book and Finding a Buyer Today

Selling a book of business is most often an integral part of estate planning for advisors nearing retirement.

"I think most advisors, because it's their job to do estate planning for others, sometimes forget to do it for themselves. This means valuing and preparing your book of business for sale way before it's actually needed by the buyer," says Cameron Jacox, managing partner with Jacox-Hilton Corporation, a firm that offers consulting services and in-force analysis software to advisors.

"When you pass away and if some like a relative is inheriting your book, depending on where that is, there's usually going to be tax associated with that, so life insurance and trusts are used to avoid as much of that tax as possible. It's more about assigning a value and knowing what it's worththan trying to sell it right then and there," concludes James Hilton, Jacox's business partner.

How to Increase the Value of Your Book Before You Sell It

Those advisors who wish to move on from the insurance business and are in need of a successor will be looking to sell their book of business. Cameron Jacox and James Hilton, managing partners of Jacox-Hilton Producer Consulting, are experts not only when it comes to selling a book, but also when it comes to maximizing its value for potential buyers.

Thankfully, they have partnered with LSM Insurance for a series of exclusive  articles on Buying or Selling a Book of Business and are here to reveal exactly what it takes to increase a book's value.

Build a Brand that's Not Advisor-Specific

Often, MGAs make the mistake of building a brand that centres only on the advisor. Jacox and Hilton will tell you that such a structure causes high attrition levels (clients leaving and cancelling their policies) because the clients are so attached to the outgoing advisor that they can't see their policies being managed by anyone else.

How to Sell Your Book of Business

As insurance and investment advisors reach retirement age, they start thinking about divesting their books of business and selling it to the next advisor who can manage the needs of their various clients. However, there are a few things every advisor should know going in when they're about to take the plunge and sell their book.

Do you want to actively market yourself? This is the first question advisors and financial planners need to ask themselves, according to Cameron D. Jacox and James E.C. Hilton, managing partners of Jacox-Hilton Producer Consulting, a Toronto- and Boston-based firm that helps insurance advisors and financial planners value their books of business and match buyers with sellers.

"Some advisors may want to do things privately because they don't want their clients to know that they are retiring," says Jacox. "There are different channels for finding a buyer, such as of online networks, conferences and coming to us to match you up with one of our buyers or sellers who would be interested in your book or selling a book."

There are a lot of informal selling options, including LinkedIn, which supports buy/sell book groups and financial practice groups. You can also go to your MGA or your insurance carrier and tell them of your plans, and they will generally know who is out there looking to buy or they may buy your book off of you themselves.

"Industry events and conferences are also excellent for networking, and I've seen conversations emerge that revolve around buying or selling a book on numerous occasions," says Hilton.