The Complete Guide to Practice Continuity Planning. Navigating The Future For You, Your Family and Your Clients

Transcription

1 The Complete Guide to Practice Continuity Planning Navigating The Future For You, Your Family and Your Clients

2 contents The Importance of Practice Continuity Planning... 2 The 6 Steps to Practice Continuity Planning...4 Step 1) Clarify Your Goals & Create a Plan...5 Step 2) Identify the Right Successor...6 Step 3) Institute a Trial Period... 7 Step 4) Establish the Business Relationship...9 Step 5) Transition of Trust...12 Step 6) The New Journey...15 FAQs Comprehensive Checklist: Practice Continuity Process Appendix Worksheet: Blueprinting Your Future...21 Checklist: Practice Continuity Planning Discussion...24 Worksheet: Creating the Ideal Successor Profile Interview Guide: Partner/Successor Meeting...28 Joint Marketing Assessment Form...31 Checklist: Are You Ready to Team?...39 Guidelines for Drafting a Succession Agreement Sample Acknowledgement...43 Sample Announcement Card...44 Sample Press Release...45 Worksheet: Transition Statement Exercise...46 Sample Practice Transfer Client Notification Letter...47

3 The Importance of Practice Continuity Planning Make sure you visualize what you really want, not what someone else wants for you. Jerry Gillies Can you honestly answer these 4 questions? What would happen to my clients and my practice if I passed away or became disabled? Who would I consider as a business partner and possible successor to my practice? What steps do I need to take to meet my goals? Do I have an answer when clients ask, What happens to us, if something happens to you? If you have difficulty answering any of the above questions then this guide is for you. Practice continuity planning or succession planning is the process of creating and implementing a long-term strategic plan to fit your emotional and financial needs, with a focus on the well being of your family, your clients and your key employee(s). It is not about selling the business. Rather it is for you to have an orderly transition to effectively preserve your client s trust you have built over the years. The overall goal is to establish continuity for your clients, optimize the efficiency of your practice and give your family peace of mind. It is ironic that financial professionals work with their business owner clients to make sure they have a business transition or succession plan in place for when the owner dies, but that many of these same advisors do not have a plan to provide for the orderly transition of their clients when they retire or prematurely die. As a matter of fact, in a recent LIMRA study, only 27% of producers surveyed have a formal succession plan in place. The outcome of not planning can be potentially problematic. As producers approach retirement age many decide to cut back on their hours to spend time with their family, travel and do other things. The independent nature of our business allows for a part-time retirement. However, those who spend less time in the business without a succession plan tend to reduce the value of their practice over time, not to mention overlooked opportunities with their client base. A key benefit in this process is to leave the venture you have spent most of your life building as a thriving enterprise vs. an organization on a downward spiral. There are two critical parts to consider for proper practice continuity planning: 1) the written plan to deal with your sudden death or disability. (In a sense, this is your practice s short-term disaster plan if anything should happen to you. You may not have a bona fide successor named yet, but you should have someone named to handle your clients in the case of your death or disability), and 2) the long-term, planned succession strategy designed to maximize the equity in your practice and the orderly transition to a chosen successor. This Guide focuses on the longer term succession strategy. Any successful transition must preserve the continuity of the practice. It is critically important that the succession be perceived as a process rather than an event. It s not a matter of deciding to retire at 4:00 p.m. next Tuesday at which time your successor will take the reins while you drive off into the sunset. Succession is a process requiring planning, teamwork, and constant re-evaluation. Many producers do not realize that if they die or become permanently disabled with no plan, then all their clients are reassigned according to the Home Office and/or local management decisions. 2 Practice Continuity Planning Guide

4 So, is it not important for you to be part of the decision process of how your business is transferred vs. leaving it for others to do? Many of your best clients are the same as your best friends and they trust you completely with their financial matters. So use this practical guide to begin planning today. We have outlined a 6-step process that best practices show takes anywhere from 2-5 years to accomplish. Keep in mind, your Field Leader plays a pivotal role in this process so be sure to include him or her in your plans. The Win-Win-Win of Practice Continuity Planning For You For Your Clients For Successor Preserves the value of your practice Promises that were made are kept Increases probability of success Fulfills the promises made to your clients Supports your family at retirement, death or disability Ensures the orderly transfer of your practice Increases revenue with new successor in your practice Enables you to enjoy more leisure time as you approach retirement with less involvement in day-to-day operations Improves stability of your practice, building credibility with clients and prospects Persistency remains high Informs and helps them prepare for a transition ahead Orderly transfer of their personal information from one trusted advisor to another Continuation of the support and services necessary to meet their long-term financial goals Establishes a mentor relationship Successful systems and processes already in place Grants an established client base for future opportunities Practice Continuity Planning Guide 3

5 The 6 Steps to Practice Continuity Planning The only thing you take with you when you re gone is what you leave behind. John Walston The process for practice continuity planning has been defined in 6 steps: Clarify Your Goals & Create a Plan Identify the Right Successor Institute a Trial Period Establish the Business Relationship Transition of Trust The New Journey Step 1: Clarify Your Goals & Create a Plan The first step is to recognize the need for succession planning within your practice, and then define goals, objectives and action plans. Step 2: Identify the Right Successor If you don t have a legacy succession, then during this step you will identify the expertise and characteristics that are critical to you for a partner/successor and to begin to identify suitable producers. Step 3: Institute a Trial Period In this stage, you will begin a trial period of joint work arrangements with your candidate(s). Since you are seeking a longterm relationship, the best way to start is to try working with each other before committing. Step 4: Establish the Business Relationship Once you have selected the right successor, you both need to identify business goals, address roles & responsibilities and expected results. At this point, you will engage an attorney to help draft a Succession Plan Agreement to formalize the business relationship, addressing all the areas of focus in transitioning your practice. Step 5: Transition of Trust During this step, which ideally takes about 2 years, you will be introducing your new partner/successor to your client base and Centers of Influence (COIs) initially as the new teammate and then, as your retirement date nears, as your successor. Step 6: The New Journey The final step is when you have transferred your book of business to the successor and each of you begins your new journey in life you in full retirement enjoying the things you want to do; and your successor running the business on their own. 4 Practice Continuity Planning Guide

6 Step 1) Clarify Your Goals & Create a Plan Your vision will become clear only when you look into your heart. Who looks outside, dreams. Who looks inside, awakens. Carl Jung Activities to complete during this step: 3 Learn about practice continuity planning and recognize the opportunity 3 Complete the Blueprinting Your Future Worksheet (page 21) 3 Define goals, objectives and action steps 3 Meet with your Field Leader to discuss the process (page 24) Typical timeframe: 2 weeks You need to set a wide variety of goals and priorities in order to craft a truly winning practice continuity plan. The best place to start is to visualize your future and begin to do some of your own fact finding on the topic of retirement and the next phases of your life and your business. Completing the Blueprinting Your Future Worksheet (see page 21) will help frame and guide you during this journey of transitioning your practice to the next generation. Practice Continuity Planning Guide 5

7 Step 2) Identify the Right Successor Coming together is a beginning, staying together is progress, and working together is success. Henry Ford Activities to complete during this step: 3 Define the attributes and profile of your ideal partner/successor and communicate it to your Field Leader 3 Identify potential candidates 3 Select/deselect potential partner/successors Typical timeframe: 1 month 1 year Identifying a potential successor is an important step in the process. There is a certain personality that the right candidate needs to possess. Your clients most likely are a collection of people with whom you share some common values and over the years the people who didn t click with you have been sifted out of your client base. Those clients with whom you have a great relationship almost certainly share common values about money, family, recreation, work, etc. One of the most important things you can do is find a partner or successor who shares a majority of those same core values. According to the latest LIMRA Study on this topic, over 7 in 10 producers who have a succession plan have named a successor. Essentially there are two choices, an internal or external transition of your practice. Table: Internal and External Successors Of those producers who have named a successor Successor Total Internal Transition Family member 40% Partner 21% External Transition Another producer 39% Source: LIMRA, Advisor Retirement Study, May 2008 Use the Creating the Ideal Successor Profile Worksheet (see page 25) as an exercise to help you better visualize and articulate the type of person you want in your practice. The completed worksheet will also help your Field Leader assist in identifying the right candidates for you to interview. It is especially important to work with your Field Leader during this step since they have access to selection tools, such as LIMRA s CP+ Questionnaire and SPQ Gold. When you meet with candidates for the first time try using the Interview Guide (on page 28) to help you ask the right questions. 6 Practice Continuity Planning Guide

8 Step 3) Institute a Trial Period Our circumstances answer to our expectations and the demand of our natures. Henry David Thoreau Activities to complete during this step: 3 Determine joint work arrangements 3 Draft a trial joint work agreement 3 Conduct a performance assessment Estimated timeframe: 3 months 2 years Practice continuity planning is a process, and your role, as well as your potential partner/successor s role, will change throughout. Having a trial joint work arrangement with short-term business goals (approximately 3-6 months) is critical. The following list will help you identify specific goals, define roles, responsibilities and expected results. Initially try to keep it simple, yet cover all the major areas of a joint work arrangement. If all works well, then the goals you define can be included in a more comprehensive Business Plan once you formalize the Succession Agreement. Key elements of the trial joint work agreement should define the following: Specific Activities (examples: contact x number of C and D clients per week, set up x # of appointments with existing clients per week, mail x # of introduction letters per week, bring in x # of qualified prospects per week, etc.) Expected Results (examples: increase in total production by x%, increase in your production by x%, increase in # of appointments, etc.) Specific Compensation Arrangements (examples 80/20 on new written business, 50/50 on all joint cases, etc.) Fixed Time Period (examples 10 weeks, 3 months, etc.) Option to Renew (if all expectations are met then both parties agree to renew or move on to a longer-term agreement) Joint Marketing Arrangements As you go through the selection process of finding a successor, you should work with potential candidates on a limited-time agreement with a specific purpose (e.g., call on C and D clients) before making any final commitments. The following grid will guide you in evaluating how formal an arrangement should be at any point in the relationship. If you check less than half of the attribute statements under a particular phase, then continue working within that phase before moving on to the next one. After a trial joint work period, use the Joint Marketing Assessment Form (see page 31) to rate your potential candidate across different areas such as overall fit, knowledge, experience, work style, etc. as observed during the trial period. Also use the Are You Ready to Team Checklist (see page 39) to help you determine whether or not you are ready to come together as a formal partnership. Practice Continuity Planning Guide 7

9 Trial Period You don t know your fellow producer very well and/or have not been on enough joint cases together to determine if he/she would be a good fit for your practice. r I prefer to work on a case-by-case basis right now. r I have been out on 2-3 cases with this candidate. r I am willing to consider making a formal commitment at this time. r I am comfortable sharing my clients. r Either one of us may have a specialization that we can leverage in helping clients. r I would be comfortable following the MDRTrecommended commission split arrangement. (20% name of prospect, 20% first interview/fact finding, 20% case design and preparation, 20% closing, 20% client service.) Score: out of 6 Joint Case Work You have already been on a number of joint cases with your candidate and are comfortable with his/her level of expertise and style. You have a good degree of confidence in his/her ability to handle some of your clients, but still need time to evaluate further. r I am ready to commit to more than just isolated joint case work. r I have a comfortable level of confidence in my candidate s knowledge and skills. r I am ready to share some clients, but only on a trial basis. r I am willing to split commissions depending on participation in the case work. (80%-20% to 60%-40%, depending on who had identified the sales opportunity and your level of participation on the case.) Score: out of 4 Partnership You have introduced your candidate to the majority of your clients and are comfortable with him/her servicing your practice. You are ready to enter into a formalized arrangement. r I have a very comfortable level of confidence in my candidate s knowledge and skills. r I am confident handing over a large portion of my clients to my candidate to service. r I would be willing to open up my book of business to him/her. r I am able to define our working relationship with specific accountabilities. r I am ready to enter a formal business/legal agreement. r I am ready to enter into specific revenue and expense sharing arrangement. (75%-25% to 50%-50% depending on your agreement and level of participation on cases) Successorship You have made your decision to enter into a formal successor relationship with the candidate whom you have selected. r I feel that this is the best person to share my practice with and ultimately, place my clients in his/her hands. r I am ready to enter into a formal agreement that will transfer my book of business in the event of my disability, retirement or death. r I am comfortable with sharing the majority of my book of business with my candidate. r I have or will define our commission split arrangement and progressive practice transfer. (50%-50%, progressing to 25%-75% or 20%-80% and, ultimately, 0%-100% at transfer) Score: out of 4 Score: out of 6 8 Practice Continuity Planning Guide

10 Step 4) Establish the Business Relationship When a gifted team dedicates itself to unselfish trust and combines instinct with boldness and effort, it s ready to climb. Pat Riley Activities to complete during this step: 3 Conduct business planning and establish business goals for the practice 3 Engage personal legal counsel/accountant 3 Draft succession agreement 3 Define and communicate future plans 3 Finalize succession agreement with partner/successor Estimated timeframe: 3 months 1 year This stage is usually an exciting time for many producers. The addition of a new associate to the team gives any practice a renewed energy and drive. Imagine the possibilities the energy and fresh perspective of a younger teammate combined with your knowledge and experience can bring to your practice. So, once you have identified a partner/successor after a trial partnership period you will now begin to craft a business plan by setting goals for the practice, outlining key roles and responsibilities and projecting results to move the business relationship to the next level. Also in this step is where you and your new partner/successor engage an attorney to create and finalize the Succession Plan Agreement, and to formalize the business relationship, addressing all areas of focus in transitioning the practice. (See page 41 for the Guidelines for Drafting a Succession Agreement.) You should also talk to your Field Leader about PML s Mentoring Program which is available to certain producers (based on length of service, production, etc.). Once you receive the final version of your Succession Plan Agreement from your attorney, submit a copy to: Greg Winsper, Managing Director Practice Development Group The Penn Mutual Insurance Company 600 Dresher Road, C2J Horsham, PA Penn Mutual s Legal Department will review your Agreement to make sure it complies with state and federal regulatory authorities and that we can implement what is outlined in the agreement. Once approved, the Home Office will send you an Acknowledgement (see sample on page 43) whereby you, the successor(s), a representative from PML and a representative from HTK sign the document. It will be held on file and remain active unless it is otherwise dissolved by you and the Successor Producer. Practice Continuity Planning Guide 9

11 As your practice grows and develops over time, it is possible a solution that worked well 5 years ago no longer applies. It is important to update or revise your continuity planning agreement or arrangement annually to make sure it stays up to date with your wishes. (If you revise any of the terms of your Succession Plan, you must notify The Penn Mutual and HTK immediately in writing. Both PML and HTK must acknowledge that the changes are acceptable.) Types of Practice Continuity Agreements As you prepare your practice continuity agreement there are many different approaches, considerations and solutions that can be utilized. The most common are: Reciprocal: two producers agree to reciprocally run each other s practices. Custodian Agreement: provides for a temporary manager to run your practice with an option to acquire it; if the option is not exercised, the individual will help to sell your practice. Partial Book Purchase: selling or having other producers acquire certain segments of your book, for example, A and B clients to one producer and C and D clients to another. Cross Purchase: individual producers all agree to acquire each other s practices. Buy-Sell: where the business entity (e.g., LLC) agrees to purchase the interest of the other owners. Please consult with your legal counsel for these and other options as you draft your formal Succession Plan. Valuing a Practice Although the focus of this Guide is not practice valuation, knowing and understanding the value of your practice is important to any well thought-out transition plan, whether your goal is to transfer the practice to a partner/successor, a peer, key employee, son or daughter. We are not suggesting that you value your practice in order to put it on the open market. But by going through this exercise you will have a better understanding of the factors involved in determining your practice s equity. It is not just about recurring and non-recurring revenue. There are both qualitative and quantitative criteria considered to determine valuation: Economics Client Base Business Operations External Forces Size of practice Profitability Cost structure Mix of business Growth trajectory Client profile Client tenure Client satisfaction Depth of relationships Management team Staff (with special skills) Business structure and processes Market forces Buyer s objectives Reputation/ brand equity Make sure to consult your tax professional regarding any deal structure as there may be certain tax implications and treatments that should be considered. 10 Practice Continuity Planning Guide

12 Funding Options There are several transaction methodologies currently being used, including: Earn-Out: this is the most common method used today and generally takes the form of an up-front payment followed by a portion of the agreed upon purchase price being paid contingent upon future performance of the practice (specified percentage of revenues, income, or based on other factors such as client retention). Buy-In: This method generally involves an up-front payment followed by periodic, fixed payments. There are pros and cons to any options including the type of financing such as seller notes, debt financing and life insurance. Make sure to consult with your legal and tax advisors to help you determine how to structure a plan to include the characteristics that are important to you. Practice Continuity Planning Guide 11

13 Step 5) Transition of Trust Few things can help an individual more than to place responsibility on him, and to let him know that you trust him. Booker T. Washington Activities to complete during this step: 3 Draft a client communications plan 3 Write a transition statement to be used with clients and COIs 3 Discuss each other s expectations and time commitments 3 Schedule joint transition meetings with top clients and COIs 3 Begin transferring responsibility and authority to successor Typical timeframe: 1 2 years In this stage you will need to design strategies including a timeframe to transition ownership, client relationships, and overall management responsibility. There are 3 important elements in this step: Develop a communications plan; o o for clients and COIs between you and your successor Transition day-to-day operations and responsibilities to the successor Transition managerial responsibilities and authority Managing a transfer of authority while balancing the internal and external environmental influences of the practice is a juggling act at best. Keep in mind, if you are somewhat less than willing to give up control and/or your designated successor is not well prepared to accept it, the transfer will be a challenge. Client Communication Over the years you have convinced your clients to implement plans and purchase products based on your advice. You essentially sold trust: trust in you and trust in the companies that back the products you sold them. This trust can only be transferred from person to person, not via or phone calls. So, this stage is especially important in order for your clients to form a new relationship of trust with your successor. First, you need to champion your intended successor - present him/her to staff and clients as a colleague or team member, not junior associate. When you introduce someone as junior, it s difficult to put him/her into an existing relationship, particularly with clients. If you intend him/her to eventually take on your client relationships, you wouldn t want to give the impression to clients that they re being passed off to a subordinate. So, how you approach what you say is important. Send out a nice wedding-style announcement card or letter (sample on page 44 and 47) to your clients and COIs as well as a press release (sample on page 45) to your local newspapers and business publications announcing the new addition to your team. 12 Practice Continuity Planning Guide

14 It is important for clients to be used to seeing your intended successor around the office, at client appreciation events, working some joint cases with you, and helping to answer client inquiries. This process begins the trust transition from you to him/her. Then, about 12 months prior to your actual retirement date; schedule 2 joint transition meetings with your top clients, one during the first 6 months and the second in the last 6 months. In the first meeting, you should announce your retirement date as well as the plan for transition. At that meeting you should also reinforce your successor s skills and credentials and express your certainty that he/she will do a great job. In the second transition meeting, nearer your retirement date, have your successor run the agenda and provide most of the advice. Your role at that meeting is to let your successor drive, affirm everything and to redirect any questions to you back to your successor. You should also schedule joint transition meetings with your key COIs to help position your successor with them as well. It is really important to make sure you have a well thought-out (and somewhat rehearsed) transition statement about you, your new practice and your successor that you can easily articulate in client meetings, with COIs, peers, etc. (See page 46 for the Transition Statement Worksheet.) Sample Timeline for the Final Year of Transition Retirement Date Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Schedule 2 joint transition meetings with A and B clients Schedule 1 joint transition meeting with key COIs Begin planning a client appreciation event for summer Conduct first joint transition meetings Finalize plans for client appreciation event Conduct second joint transition meetings Send Transfer Letter to CL&R Internal Communications To make this transition work, you must communicate, communicate, and communicate, with your successor. First, expectations need to be set by you and your successor so that everyone is on the same page. For your successor, they need to outline and share their personal and business goals with you. Based on these goals, how will you then plan to give them the opportunity, the budget, the authority and the responsibility necessary to achieve success, and to support their needs during the dues paying period of the transition? Also, you need to share with your successor, as well your spouse or other family members, your expectations during this critical stage with regard to time requirements and scope of authority during the transition period. If any of these conflict with the successor s personal or career goals, the transition may be doomed to fail. Make sure to schedule regular meetings to review the progress of your business plan, identify development and training gaps, and resolve internal conflicts and/or areas of confusion. Practice Continuity Planning Guide 13

15 Managerial Transition The transition can be effected gradually by relinquishing more and more responsibility to the successor. Maybe take a number of planned absences before actually relinquishing control. Let the successor see what it is like to manage the practice alone. Also, this allows you to see that the practice is not going to fall apart without you. If there were problems that arose during your absence, use these as moments of truth so the successor can learn from them. Think of delegating more authority and relinquishing control in various phases. In Phase 1, your successor needs to bring all issues to you and then you tell them what to do. In Phase 2, they still come to you with issues, but they also have to bring to you proposed solutions on which you can comment on their ideas. In Phase 3, they come to you with an issue and tell you what they did. In Phase 4, they are doing it all on their own. The time frame from going through the 4 phases all depends on how you communicate with each other and how comfortable you feel moving from one phase to the next as well as how well the successor gets it. 14 Practice Continuity Planning Guide

16 Step 6) The New Journey We all leave footprints in the sand, the question is, will we be a big heal, or a great soul. Anon. Activities to complete during this step: 3 Let go of the past while honoring what you re giving up 3 Give yourself permission to take time out 3 Successor develops an updated business & marketing plan The final step is when you have transferred your book of business to the successor and each of you begins your new journey in life you in full retirement enjoying the things you want to do; and your successor running the business on their own. The important part for you in this step is to let go. For many, it is very hard to walk away. One of the primary reasons is the fear of retirement. To understand this fear, it is necessary to appreciate the relationship between work, the meaning of life and social evaluation. Most likely, work and your practice are synonymous with a meaningful life. The intense involvement you have with the practice increases the importance of the job and your identity. Removal from work is like losing a part of oneself. Work is important to you because it provides: Economic returns Opportunities to contribute to society Status and self-respect Social interaction Personal identity Structured time Personal achievement That s a lot to ask someone to give up. Because this loss is often unpleasant, it is not uncommon for a producer to give a successor the responsibility for running the practice yet still hang on and retain power. One way to still stay involved but not get in the way is to take on a role as sounding board. For example, have a post-transition meeting with the successor on a quarterly basis to listen to the practice s progress, challenges, new ideas, etc. You can even plan on attending certain client appreciation events to stay in touch with some of your former clients you don t see on a regular basis. Also you can substitute the social interaction and status you received from your practice by using your talents working with charitable or community organizations as you are transitioning out of the business. In summary, the producer who successfully lets go has (1) a sound financial plan for retirement, (2) activities outside the practice that can provide social contact and power, (3) confidence in the successor and (4) a willingness to listen to outside advisors. Practice Continuity Planning Guide 15

17 FAQs What happens to my book of business if I die without a practice continuity plan? If you die or become permanently disabled with no plan, all your clients are reassigned according to decisions made by the Home Office and/or local management team. How is retirement defined for purposes of the qualified benefits plans offered to full-time agents? These plans define retirement as terminating your full-time contract after you have met the eligibility requirements to commence the Agents Retirement Plan benefits and then initiating those benefits. How do benefits work in retirement? Once your full-time contract is terminated, you are no longer eligible to participate in the retirement and health and welfare benefits offered to active full-time producers. Instead, you can commence distribution of your retirement benefits, and your eligibility for continued health and life insurance benefits will depend upon your age and the amount of credited service. You should review the Agents Welfare Plan Summary Description available on pennmutual.benefitsnow.com. If I have a non-qualified deferred compensation account, how will it be paid out? Any non-qualified benefits will be paid to you based on the timing and form of payment you elected upon entry into the plan. In retirement, do I need to carry E&O coverage? If so, what level of coverage is required or recommended? If you maintain an active contract with Penn Mutual in retirement that allows you to continue with new sales, you must continue to maintain active E&O coverage. If, however, you terminate your contract as part of the transition, you are entitled to extended reporting coverage under the E&O program and are eligible to purchase longer extended reporting period. Go to to learn more. How do I go about valuing my practice? Many mid-size accounting firms have the knowledge of valuing a financial advisor s practice. A company based in Portland, Oregon, FP Transitions ( is considered the leading provider of valuation and succession planning services for financial advisory and insurance based practices. Whoever you decide to use should have experience in the valuation of an insurance-based business since the methods are different than other service businesses. 16 How should I work with my Field Leader during this whole process? Your Field Leader can provide you support at each step of the process. In Step 1, they can coach you through the options that he or she believes are right for you and your practice given the goals and objectives you identified. In Step 2, they can help create a pipeline of candidates for you to interview and suggest potential matches. In Step 3, your Field Leader can verify top candidates and discuss joint work options. In Step 4, they can help review the Business Plan and make suggestions, review the Succession Agreement and make recommendations, and obtain legal approval for the succession plan. In Step 5 and 6, they can help coach the partner/successor. Practice Continuity Planning Guide

18 Once I identify a partner/successor how do we move forward and determine how we will work together? There are 2 documents that need to be created. A Business & Marketing Plan will help you identify how your practice will now change and includes mission statement, roles, responsibilities, objectives, marketing plan and development plan. The other document is the Succession Agreement which is the legal document that formalizes the business relationship. You will need to engage personal counsel (e.g., attorney) to create this document. How do I obtain legal and accounting guidance for practice continuity planning? Please speak with your outside professional legal and accounting resources regarding succession planning for your practice. We have provided the Guidelines for Drafting a Succession Agreement (page 41) to help you consider the many issues that need to be addressed. Once I have a practice continuity agreement signed by myself and my partner/successor, what do I do with it? You should send it to: Greg Winsper, Managing Director Practice Development Group The Penn Mutual Insurance Company 600 Dresher Road, C2J Horsham, PA Penn Mutual s Legal Department will review your Agreement to make sure it complies with state and federal regulatory authorities and that we can implement what is outlined in the agreement. Once approved, the Home Office will send you an Acknowledgement whereby you, the successor(s), a representative from PML and a representative from HTK sign the document. It will be held on file and remain active unless it is otherwise dissolved by you and the Successor Producer. Who can I contact for more information regarding practice continuity planning? Start with your Field Leader, otherwise contact: Greg Winsper Practice Development Group [email protected] or Marnie Brown Practice Development Group [email protected] Practice Continuity Planning Guide 17

19 Comprehensive Checklist: Practice Continuity Process q Step 1) Clarify Your Goals & Create a Plan o Learn about practice continuity planning and recognize the opportunity o Complete the Blueprinting Your Future Worksheet o Define goals, objectives and action steps o Meet with your Field Leader to discuss the process q Step 2) Identify the Right Successor o Define the attributes and profile of your ideal partner/successor and communicate it to Field Leader o Identify potential candidates o Select/deselect potential partner/successor o Discuss next steps with your Field Leader q Step 3) Institute a Trial Period o Determine joint work arrangements o Draft a trial joint work agreement o Conduct a performance assessment o Discuss next steps with your Field Leader q Step 4) Establish the Business Relationship o Conduct business planning and establish business goals for the practice with new successor o Engage personal legal counsel/accountant o Draft succession agreement o Define and communicate future plans with staff o Finalize succession agreement with partner/successor q Step 5) Transition of Trust o Draft a client communications plan o Write a transition statement to be used with clients and COIs o Discuss each other s expectations and time commitments o Schedule joint transition meetings with top clients and COIs o Begin transferring responsibility and authority to successor q Step 6) The New Journey o Let go of the past while honoring what you re giving up o Give yourself permission to take time out o Successor develops an updated business & marketing plan 18 Practice Continuity Planning Guide

20 Notes Practice Continuity Planning Guide 19

21 appendix

22 Worksheet: Blueprinting Your Future Instructions: The first place to start when thinking about your future is to create a mental picture of what it will look like in business and life and the goal towards which you are working. It s your vision for your environmental surroundings, the people you associate with, what you spend your time doing and what you want to accomplish. Your vision must be compelling, motivating and helps you to persevere even when times are difficult. First, answer these questions as accurately and completely as possible: My ideal working environment is (include location and surroundings) o The relationships I want to surround myself with include: o I want to spend my days working on: If I wasn t afraid, I would My life will not be complete unless I If I had all the money I ever needed, I would spend the rest of my life I want people to remember me by saying I was My most memorable experiences include The part of my weekly routine that I look forward to is I feel alive and energetic after I have just The community/world issue that I feel most strongly about is It may seem impossible today, but my life would dramatically improve if Second, review how you answered all the questions above. From this, use the following outline to write your compelling vision for the future that motivates you to take action and that gives you great excitement from just thinking about it. Remember, as you are writing this, focus on where you want to be in the future not where you are now. My compelling vision is to Surround myself with Live in Spend my days Accomplish Appendix: Step 1) Clarify Your Goals and Create a Plan 21

23 Key questions to consider: Business Objectives: q How do you honestly answer the following from your best client, I love what you are doing. You have helped me and my family over the years. What happens to us if something happens to you? q What is your vision for the succession of your practice? q Do you feel it is important to have your child(ren) take over your practice? q How much of your practice, and what parts of your practice, do you want to survive you post-transition? q How involved do you want to be with your practice post-retirement? Professional Objectives: q Are there parts of the business you enjoy more or less than others (e.g., relationship management, case design, operations, etc.)? q Do you enjoy mentoring or coaching others? q Are you interested in activities outside your practice such as public speaking, participating in industry forums or influencing policy? Personal Objectives: q How much longer do you want to remain in business? q When do you plan to retire? q Do you want to stop working all at once, or to transition over time? q Have you taken any initial steps toward your retirement? (check all that apply) q Educated yourself on your health and other benefits after retirement q Analyzed your pension income options q Reduced your work hours/work effort in the past year q Identified a partner/successor q Reallocated your time to focus on high-value activities q What kinds of projects, activities, charitable/community work and other plans do you have for retirement? q What will you do after you transition your practice? 22 Appendix: Step 1) Clarify Your Goals and Create a Plan

24 Rate the extent to which you value the following pre-retirement and retirement strategies: Practice Transition Strategies Already in Place Circle your answer (1=low value; 5=high value) Inform my clients about my upcoming retirement Choose a successor or partner Introduce my successor or partner to my clients Provide seamless service to my clients through and beyond my retirement Determine the actual value of my practice Develop a plan to transition my practice to my successor or partner Continue to work part-time during retirement Finally, if you have not identified a successor for your practice, what is getting in the way? q Self-motivation q Taking the time to do it q Not convinced it is necessary q Identifying the right successor q I am going to die with my boots on q Not sure Next steps: q Discuss this worksheet with your Field Leader q Educate yourself on your retirement options Appendix: Step 1) Clarify Your Goals and Create a Plan 23

25 Checklist: Practice Continuity Planning Discussion As you begin to define the direction of your practice s future and identify the attributes of a potential successor, no doubt you will have more questions than answers. Here is where discussion with your Field Leader is absolutely essential. This checklist of questions/topics provides a great starting point to discuss the major components of practice continuity planning with your Field Leader or Coach. These questions, combined with your completed Blueprinting Your Future Worksheet, will provide an excellent first step in embarking on this very important decision. q Review your current agent contract provisions Notes: q How many years of service are credited to me for benefit purposes? Notes: q Where can I get information regarding my retirement and health benefits? Notes: q How will the organization help me with providing successor candidates to interview? Notes: q Will the organization assist me in training and/or orientating the new successor if brought in from the outside? Notes: q Are there any candidates right now I should speak to? Notes: q How do I go about getting my practice valued? Notes: q Are there any other producers at Penn Mutual I can talk to who are going through this same process? Notes: 24 Appendix: Step 1) Clarify Your Goals and Create a Plan

26 Worksheet: Creating the Ideal Successor Profile 1) Paint a Picture Visualize the kind of producer it would take to serve your clients as you transition your practice. Consider internal characteristics (attitude, personality, beliefs, talent, etc.) as well as external (experience, background, education, skills, production-level, etc.) List characteristics here: Please rate the qualities you would look for in a successor: Quality Please circle your answer: (1 = Not very important and 5= Important) Organizational skills Financial acumen Product knowledge Sales skills Knowledge of your market Computer literacy Financial stability Integrity Appendix: Step 2) Identify the Right Successor 25

27 Any other additional requirements for your ideal candidate, such as: q Length of time in the business: minimum q Bi-lingual: q Memberships (alumni, professional, etc.): q Social/sports proficiency (golf, tennis, etc.): q Community involvement: q Charitable activities: q Other: 2) Develop or Select? Review your characteristics and qualities from above that can be developed (education, sales skills, product knowledge, alliances, etc.) by mentoring and/or agency training vs. selected (attitude, personality, drive, background, etc.). Make two lists of the factors below: Develop? Select? 26 Appendix: Step 2) Identify the Right Successor

28 3) Critical Successor Attributes From your previous list, identify the factors/attributes that are critical for anyone to have a future relationship with you and your clients. These attributes should be the bottom line, non-negotiable and absolute. These attributes are so critical that a potential candidate, who does not possess them, would not even be considered a successor. Typically, 5-8 factors are identified on this list. List your critical attributes below: Critical Successor Attributes 1) 2) 3) 4) 5) 6) 7) 8) Now What? Your list of Critical Successor Attributes should describe the kind of person it would take to serve your clients if something were to happen to you. The list will essentially become your screening tool when searching for a successor candidate. Try testing your list: Are the criteria specific, reasonable and understandable? Do the attributes describe a person you could work with in the future? Show the list to some of your trusted colleagues, advisors and significant others who know you well: Do they agree with the critical attributes? Do they know anyone with those attributes? Does the list need to be reworked? Now work with your Field Leader to begin the process of either looking from within the current organization or searching the experienced producer market for candidates. Having a pipeline of suitable producers will help you pinpoint someone with whom you can begin working. Appendix: Step 2) Identify the Right Successor 27

29 Interview Guide: Partner/Successor Meeting Candidate: Date: How did you get in the business? Tell me about your practice. Do you have a business/marketing plan? Do you have a target market? What planning process and/or approach do you use? As it relates to the business, what do you like to do? Dislike? What are current challenges you are facing? What are the key strategies around which you have built your business? How did the strategies help you achieve success with your clients? What input have you had in developing these strategies? How did you go about implementing these strategies? Look for: The ability to connect key strategies to drive business results; clearly articulate the actions they took to achieve the strategy; how do they connect strategy to day-to-day activities. Tell me about a time when you changed your plans in order to support your business. How did it affect you? How did you alter your plans in response to change? Was it difficult? What was the result? Look for: The ability to understand the business reason behind a change and adjusts quickly; identifies the need for flexibility early on to create significant competitive advantage. Please give me a specific example of a situation where you had to find ways to overcome challenges to achieve success in your business. What challenges have you overcome? How have you been successful? What support/resources did you use? How do you avoid blaming others? Look for: The ability to see a challenge as an opportunity; demonstrating their capability to overcome adversity rather than to find an excuse or someone to blame; reaches out when assistance is needed; uses the resources/support systems effectively; holds himself or herself accountable for achieving business results. 28 Appendix: Step 2) Identify the Right Successor

30 Tell me about a suggestion that you made that lead to an important breakthrough with a client. What was the case? What was the issue leading to the need for a breakthrough? What was the suggestion? What was your thought process? Was it successful? Why? Look for: Demonstrates ability to analyze a problem and develop a solution that impacts end results; generating creative solutions using business experience. Talk to me about your experience doing joint work with fellow producers. Did you share all responsibilities? How did you split responsibilities? How did you share revenue? Expenses? Look for: Prior experience doing joint work; joint work arrangements; sharing responsibilities, revenue and expense. Tell me about a time when you partnered with someone through an important sale. How did you clarify goals? How did you evaluate options? How did you follow through to successful completion? Look for: The ability to articulate how they think through a sale and effectively communicate the goals; involve others in evaluation options or developing ideas and follow through to successful completion; takes extra steps to ensure that people really understand key messages; distills the essence of information that needs to be communicated. Tell me about a time when you worked with a difficult partner doing joint work. How did you and your partner work together? How did you manage any conflict? What was the result? Look for: Willingness to work together on a solution; ability to clearly communicate and resolve conflict; demonstrates accountability for partnership success. Tell me about a time that you were able to demonstrate your ability to understand the needs and perspectives of clients. How did you listen effectively? What kinds of questions did you ask? How did you understand their perspectives? Look for: The ability to listen effectively and ask appropriate clarifying questions in order to understand another s perspective; is skilled in using a wide variety of methods to get messages across; is visible and accessible; gets information to people in the most timely manner. Appendix: Step 2) Identify the Right Successor 29

31 Tell me about a time when you found it difficult to get information you needed to meet client needs? Why was it difficult to get the information? What information was needed? Why was this important? What did you do? Did you get what you need? If so, how was it helpful to the client? Look for: Demonstrates a sense of urgency in meeting the needs of a client. Shows willingness and innovation in obtaining information in order to meet a client s needs; uses informal networks in the organization to meet client needs. Overall Interview Rating Well Above Average Above Average Average Below Average Well Below Average Key Strengths: q q q q q Potential Limitations/Concerns: Other Notes: Recommendation: q Continue q Discontinue 30 Appendix: Step 2) Identify the Right Successor

32 Joint Marketing Assessment Form Use this Assessment Form to rate your potential candidate across different areas such as overall fit, knowledge, experience, sales approach, and work/communication style as observed during the trial period. Producer: Potential Partner/Successor: Evaluation Period: / / to / / Ratings: 5 = Excellent Exceptional performance; consistently exceeds my expectations; contributions to my practice were exceptional; continually demonstrates a superior level of competencies and behaviors 4 = Very Good Frequently exceeds expectations; notable contributions to my practice; frequently demonstrates a significant level of competencies and behaviors 3 = Good Meets expectations; fully satisfactory; solid and reliable contributions to my practice; consistently demonstrated a significant level of competencies and behaviors 2 = Needs Improvement Requires development in this area; does not demonstrate the expected level of competencies and behavior 1 = Unacceptable Performance is below the acceptable level; did not usually demonstrate the expected level of competencies and behavior Passion for Excellence Area Rating Demonstrates enthusiasm and pride in the work she/he performs Demonstrates good listening skills Appendix: Step 3) Institute a Trial Period 31

33 Speaks and writes clearly and effectively Demonstrates an interest in personal growth and expansion of his/her knowledge base Displays objectivity, identifies important issues, asks relevant questions, reaches sound conclusions, and considers the potential impact before recommending actions Demonstrates professionalism Selling Skills Area Connects with clients/prospects with good listening skills, empathy, and provides just the right amount of information Rating Appendix: Step 3) Institute a Trial Period

34 Uses a comfortable and systematic open talk in first appointments Utilizes a comprehensive fact finder to gain both hard and soft data Demonstrates ability to handle resistance/objections Presents solutions to clients/prospects in a way that motivates them to take action a majority of the time Demonstrates ability for clients to give recommendations upon delivery of a product or plan Appendix: Step 3) Institute a Trial Period 33

35 Planning & Product Knowledge Area Rating Demonstrates knowledge and applications of protection planning concepts Demonstrates knowledge and application of wealth accumulation concepts Demonstrates knowledge and application of wealth transfer concepts Demonstrates knowledge and application of business insurance concepts Demonstrates knowledge and applications of fixed life insurance Appendix: Step 3) Institute a Trial Period

36 Demonstrates knowledge and applications of variable life insurance Demonstrates knowledge and applications of fixed annuities Demonstrates knowledge and applications of variable annuities Demonstrates knowledge and applications of investments and equities Appendix: Step 3) Institute a Trial Period 35

37 Leading By Example Area Demonstrates a positive attitude toward our business s goals and contributes to maintaining a high morale in the office. Rating Takes responsibility for actions and accepts responsibility for mistakes Treats colleagues with respect and consideration Keeps me informed of progress and issues Is actively involved in professional and community activities Appendix: Step 3) Institute a Trial Period

38 What are these candidate s inherent strengths? There are essentially 4 roles any good producer needs to fulfill on a regular basis: Finder, Binder, Minder and Grinder. Read the description of each, and based on your observations thus far, identify where you think the potential candidate has inherent strengths and/or weaknesses in each role. Finder This is someone who is a solid prospector and who develops relationships very easily. He/She is generally very outgoing, social and is a solid communicator. This person can work a social gathering rather easily and quite comfortably and for the most part makes a positive and lasting impression on people. The potential candidate is: q A natural in this role q Comfortable in this role and will improve with time q OK, but not his/her strength q Has a really tough time in this role Binder He/She knows the details, is organized and can easily communicate the finer points of complicated proposals, tax laws and planning concepts. This person is a great communicator but not necessarily a socializer. Give this person a complicated problem, and not only will they solve it but also be able to explain it in a clear, concise and professional manner. The potential candidate is: q A natural in this role q Comfortable in this role and will improve with time q OK, but not his/her strength q Has a really tough time in this role Minder Primarily a service and communication role which is crucial to maintaining existing clients and creating new business opportunities. A Minder insures consistent, value-added support and service to clients. This person looks to plan and implement activities in order to deepen current client relationships. The potential candidate is: q A natural in this role q Comfortable in this role and will improve with time q OK, but not his/her strength q Has a really tough time in this role Grinder This person tends to be more technical in nature and is generally not a socializer. They are generally behind the scenes and enjoys all aspects of case design including running proposals, crunching numbers, and developing presentations. A really good Grinder can come up with some creative approaches in packaging complex solutions. The potential candidate is: q A natural in this role q Comfortable in this role and will improve with time q OK, but not his/her strength q Has a really tough time in this role Appendix: Step 3) Institute a Trial Period 37

39 Overall fit: Please indicate on the scale below with an X your degree of comfort in working with this candidate and how you believe they fit with your practice. 0% 25% 50% 75% 100% Low level of comfort/fit High level of comfort/fit Next steps: 38 Appendix: Step 3) Institute a Trial Period

40 Checklist: Are You Ready to Team? This checklist is designed to help you determine whether or not you are ready to come together as a formal partnership. It is important to respond to each statement honestly. Trust You need a 360-degree circle of trust; you must have complete trust in your partner/ successor and they must have complete trust in you. This is the integrity component essential to the long-term success of any partnership. Circle One 4 = strongly agree 3 = mildly agree 2 = mildly disagree 1 = strongly disagree I have complete trust in my potential partner/successor. Compatibility Although trust is essential, you also must be able to get along in a high-pressure business environment. This is much different than enjoying each other s company socially We can work well together and be supportive of one another. Work Ethic Even if you trust one another and are compatible, work ethic has to be aligned among your potential partner/successor. Whenever one partner perceives that he or she is working harder than the other, resentment surfaces that will ultimately lead to conflict. This will destroy a relationship. Everyone must agree on the desired work ethic prior to forming I have total respect for my potential partner s current work ethic and fully expect that work ethic to continue as a team member this includes scheduled vacations and personal time. Competency Your potential partner/successor must be fully capable of performing well in their areas of expertise I have complete confidence in my potential partner/successor s ability to perform their duties with complete professionalism and competence. Comprehensive Business Plan Everyone must agree on the vision of the newly formed team, the long-range goals, ideal client, services to be provided, planning approach, etc. This is essential for creating a critical path that the team will follow as it grows Everyone has a complete understanding of the team s long range business plan, goals, marketing and sales approach and is in complete agreement. Appendix: Step 3) Institute a Trial Period 39

41 Clear Roles & Responsibilities Every team member should have a clear role and delegated areas of responsibility prior to forming I have a thorough understanding of each team member s role and delegated areas of responsibility. Partner Contribution Clarity You and your partner/successor should have a clear understanding of his/her individual contribution to the team s annual goals. I have come to an agreement with my potential partner/successor on his/her expected contribution, along with mine, and agree with the corresponding compensation arrangements for exceeding or falling behind agreed upon targets. Client Segmentation You must agree before forming a team on how you will segment the client base. Whether it is A and B or Platinum and Gold clients, agreement must be made on the appropriate levels of service to be delivered to each segment We have agreed on how to segment our current clients to ensure that all clients of a specific profile (i.e., A vs. B ) receive the same level of service/attention. Basic Team Operations You need agreement on weekly team meetings, frequency of communication with each other, phone coverage, office hours, etc We have clear procedures for phone coverage, communication frequency, office hours and weekly team meetings that are agreed upon. Performance Reviews You should sit down with your partner/successor and conduct an assessment of achievements, goals, issues, overall performance via quarterly reviews We have agreed upon a scheduled review process. Your Total Score Score Breakdown: 40 Perfect! Get together, make the arrangement formal, and begin your new journey You re ready to form, but re-visit the few areas that you scored a 3 or less on to get more clarity You probably think you re ready to form, but you should have a serious discussion on every area that you do not strongly agree on You are not ready yet. Continue to do some joint work together before you formally partner < 26 Don t even think about probably not a right fit 40 Appendix: Step 3) Institute a Trial Period

42 Guidelines for Drafting a Succession Agreement Key points to consider before meeting with your attorney: q Do you have any current agreements/arrangements in force with respect to compensation splitting or succession planning? q In addition to your activities as a producer, do you operate any other related or unrelated business? Describe. q What is the scope of the agreement? o What clients and areas of the business are involved? o Are other companies contracts involved? q Whom have you identified as the partner/successor producer for your practice? o Note: Coordinate the Succession Plan with your will/trusts. q An advisor needs to assess the tax consequences. Ensure that it is periodically reviewed. q Do you and your designated partner/successor have all licenses that may be required in order to share compensation or service responsibilities? Compensation Arrangements q How do you propose to split compensation on business written after your agreement is in force? o How should the compensation splits be different if your partner/successor producer is not involved in the sale? o How should the splits be different if your partner/successor makes the sale and you are not involved? o If the compensation depends upon a producer s involvement in a sale, how would you define involvement? q How do you expect expenses to be handled? o Are there any types of expenses that you feel should be borne equally by you and your designated partner/successor? q Are you doing any joint work with other producers? o If yes, should such business be fully excluded from your arrangement with your designated partner/ successor? o If not, how would you like your Succession Plan Agreement to deal with this joint work? o How developed do you think a case should be for it to be treated as in-process? Retirement Arrangements q If this is a partner/successor relationship, do you intend to withdraw fully from sales and activities at some point? If yes, when would this retirement occur? q If you will not withdraw completely from sales activities, should your share of compensation decline over a period of time? Appendix: Step 4) Establish a Business Relationship 41

43 Other points to consider: q Timeframe: What is the beginning and end date for the succession process? q Roles and Responsibilities : Who is doing what, and when? Important items to address: o You should be willing to agree to transfer all of the Penn Mutual client information and records to the partner/successor during or upon the successful completion of the Transition Period (as defined in your Agreement). o All producers must remain in good standing with the Company and comply with all corporate conservation of business rules and rules against replacement of in-force business. o The partner/successor must retain an active Soliciting Agent s Contract with Penn Mutual throughout the term of the Agreement and an active registration with Hornor, Townsend and Kent, Inc. (HTK) if registered. o The partner/successor agrees that during the Transition Period, in the event of your death, or disability, he/she will continue to provide service to all policyholders. q Value and method of transfer: Have your attorney specifically document your understanding. For example, will life insurance be used to fund some or all succession costs? q Definitions: Make sure all key terms are specifically defined, including Transition Period and what constitutes disability. q Confidentiality: Consider how to address documents and information proprietary to your practice. (Note that both producers must comply with Penn Mutual s Confidentiality Policy.) q The Unexpected: If your partner/successor predeceases you, will you become the servicing agent for his/her clients? q Disagreement: Consider how disagreements or contract breaches will be addressed (i.e. mediation, arbitration and/or a court of law). q Servicing Agent: You agree that Penn Mutual will record your partner/successor as Servicing Agent following the Transition Period. q Termination: Carefully consider a termination provision to address what happens if both producers agree to end the Succession Agreement. 42 Appendix: Step 4) Establish a Business Relationship

44 Sample Acknowledgement Penn Mutual and Hornor, Townsend and Kent, Inc. (HTK) hereby acknowledge that they have been advised by [insert agent1 name] and [insert agent2 name], who currently each have an active soliciting agent s contract with Penn Mutual and who are registered representatives of HTK, that the two have entered into a business continuation agreement. 1. Penn Mutual agrees that upon the death or disability of [agent1] or termination of [agent1] s current or subsequent soliciting agent s contract with Penn Mutual, that it will make [agent2] the servicing agent of record on business where [agent1] had been the agent of record, provided that (1) [agent2] is an agent in good standing with Penn Mutual at that time (2) both [agent1] and [agent2] remain registered representatives of HTK and (3) at the time of [agent1] s soliciting agent contract termination [agent2] and [agent1] (or [agent1] s duly appointed representative), instruct Penn Mutual in writing that the business continuation agreement is still in effect and that [agent2] should be made the servicing agent of record. In doing so, [agent1] relinquishes whatever rights he may have to vested renewal commissions upon the termination of his last soliciting agent s contract with Penn Mutual and [agent2] as the servicing agent of record will then be entitled to any renewal commissions, service fees and asset based trailers that otherwise would have been paid to [agent1] if he remained an active representative. [agent2] s right to remain the servicing agent of record is contingent upon his remaining an active agent in good standing of Penn Mutual and an active registered representative in good standing of HTK. 2. HTK agrees that upon the death, disability or termination of [agent1] s current or subsequent registered representative s contract with HTK, that HTK will make [agent2] the servicing agent of record on business where [agent1] had been the registered representative provided that (1) [agent2] is an agent in good standing with HTK at that time (2) both [agent1] and [agent2] remain registered representatives of HTK and (3) at the time of the termination of [agent1] s registered representative s agreement [agent2] and [agent1] (or [agent1] s duly appointed representative), instruct HTK in writing that the business continuation agreement is still in effect and that [agent2] should be made the servicing agent of record. In doing so, [agent1] relinquishes whatever rights he may have to any compensation upon the termination of his registered representative s agreement with HTK. 3. Nothing in this acknowledgement is intended to in any way alter or supersede any of Penn Mutual s or HTK s rights under their respective soliciting agent s contracts and registered representative s agreements with either [agent1] or [agent2], including the right to terminate said contracts according to their terms. Penn Mutual and HTK take no position on the validity or enforceability of the business continuation agreement between [agent1] and [agent2] and Penn Mutual and HTK have no responsibility or obligations with respect to that agreement. [agent1] and [agent2] agree to indemnify and hold Penn Mutual and HTK harmless should any disagreement arise with respect to this acknowledgement or their business continuation agreement. This Agreement shall be governed by and construed in accordance with Pennsylvania law. WITNESS the following signatures: [Agent1] DATE: (SEAL) [agent2] DATE: (SEAL) THE PENN MUTUAL LIFE INSURANCE COMPANY DATE: By: Title: HORNOR, TOWNSEND & KENT, INC. DATE: By: Title: This is a simple, straightforward example and not the only option available. Each Acknowledgement is written according to the Succession Plan submitted to PML. Sample for reference purposes only. Appendix: Step 4) Establish a Business Relationship 43

45 Sample Announcement Card John Q. Agent, CLU, ChFC After years in the financial services industry, I am pleased to formally introduce you to these important members of my practice. Our goal is to provide added value and ongoing service for your financial security. Jane A. Advisor, CLU Senior Advisor George B. Penn Executive Assistant Sarah J. Mutual Marketing Manager Thank you for your continued trust and confidence. Company Name Address City, ST ZIP Address 44 Appendix: Step 5) Transition of Trust

46 Sample Press Release FOR IMMEDIATE RELEASE XXXX Joins Penn Mutual s XXXX Office (City and State) (DATE) Penn Mutual is proud to announce that (INSERT NAME HERE) has joined their (LOCATION) office as a/an (TITLE). (LAST NAME) is a graduate of (COLLEGE OR UNIVERSITY) with a degree in (DEGREE). Prior to joining Penn Mutual, (LAST NAME) worked with (PREVIOUS COMPANY S NAME). We re thrilled to have (FIRST NAME) join our team, said (PRODUCER S NAME AND TITLE). We think (HE OR SHE) brings incredible depth and knowledge to our team, and will become an undoubted leader in the industry. About our Firm (Insert boilerplate info here about DBA) Appendix: Step 5) Transition of Trust 45

47 Worksheet: Transition Statement Exercise It is important to make sure you have a well thought-out (and somewhat rehearsed) transition statement about you, your new practice and your successor that you can easily articulate in client meetings, with COIs, peers, etc. Describe what your practice is going through during this stage: Describe what your long-term plans (4+ years) are going to be: Describe the attributes and skills of your successor: Now, based on your answers above, write your 2-3 sentence Transition Statement that you will use to position you, your practice and your successor to clients, peers, COIs, and colleagues. 46 Appendix: Step 5) Transition of Trust

48 Sample Practice Transfer Client Notification Letter Month 00, 2010 [Recipient s Name] [Recipient s Street Address] [Recipient s City, State, Zip Code] Dear <First name> <Last name>: Hello and I hope this letter finds you well. Over the years we ve talked about protecting and building your financial security, and the importance of taking steps to prepare for the future. Well, I m dropping you this line to tell you that I m taking my own advice. After x years of service, (spouse s name) and I have decided to spend more time with our family and to transfer my practice to (successor s name) effective (date). I ve always felt that service is the cornerstone of a strong business. I ve tried to give you a high level of service and treat you as a valued client. (Successor s name) feels the same way I do. (Successor s name) has been working in the insurance industry for the past x years, is committed to his own professional development, and believes that building relationships is what s most important. (Successor s name) will continue to maintain the office located at (address). Beginning in (date) you will start to see (successor s name) name and telephone number on your various policies, contracts, and investment account statements as the company completes this transition process. Additionally, if you call any of our client services centers (successor s name) will be reflected as your agent for any policy services issues. During this transition period please feel free to contact (successor s name) regarding any questions and concerns you may have. You may contact him/her directly at (phone number) or you may contact him/her via at ( address). In closing, Thank You for providing me with such a wonderful opportunity to be of service to you and your family over these many years. Sincerely, (Successor s name) offers securities products and services as a Registered Representative of Hornor, Townsend & Kent, Inc. (HTK). HTK is a wholly owned subsidiary of Penn Mutual. Appendix: Step 5) Transition of Trust 47

49 Notes 48 Practice Continuity Planning Guide

50 For Producer Use Only T /10