ROUND TABLE ON THE TRANSFER OF A
BROKERAGE TO A FAMILY SUCCESSION
By Alain Castonguay, March 30, 2015
BACKGROUND
In this era of consolidation in the brokerage industry, certain family businesses are able to continue as
a result of family succession taking over. The market is evolving, consumers' needs are changing and
brokers don't have a choice - they have to adapt. With the collaboration of RSA Insurance, the Journal
de l'Assurance gave several brokers the opportunity to talk about how the transfer of ownership took
place in their business.
Happy reading!
The editor
TAKING OVER THE FAMILY BROKERAGE:
TIME AND PREPARATION ARE ESSENTIAL
Taking over a family business may seem easy: the new generation brings continuity for the brokerage's
clientele. But time and preparation are needed.
Sylvain Darche, Director, Consulting, Strategy and Performance for RCGT, notes the delicate nature of
having to choose the right person from the family to take over.
Denis Allard, Corporate Business Director with RSA Canada in Quebec, adds that it is not easy to reconcile
the presence of children, and owners as well as the desires of staff already in place in a company's
succession plan. He suggests the use of services and advice from experienced staff. By even involving
them as shareholders, you can prevent having the company's lifeblood leave at the time of the transition.
Mr. Darche reminds us that there are hybrid formulas available that allow employees to purchase shares
in the company and to collaborate in the growth along with the family succession. He recommends that
the members of a family meet at least once per year, to discuss strategic planning and prepare the
younger generation to become shareholders. "Being a good shareholder is not limited to benefitting from
the family legacy."
If the person who wants to sell remains the owner, he must also adapt.
– Benoît Després
Benoît Després, Chairman of the Courtiers Multi Plus firm in Montreal became a shareholder upon the
death of his grandmother. He represents the third generation at the helm of the family business founded
65 years ago. After having replaced people during the summers while he was a student, he started
working at the time of all the damage caused by freezing rain in January 1998, to lend a hand. He had to
wait to finish his studies.
His brother Mathieu, who studied to be a fireman, also works in the family business. For now, both of
them have the same number of shares in the company, but discussions are underway with their parentshareholders about the future. For the last ten years, their father has only taken care of the
administrative side.
Mr. Després' parents are still the majority shareholders. The succession had to be considered when the
grandfather got sick. For now, his brother, Mathieu, and he each own 16% of the shares, and the buy-back
process is continuing. Mr. Després' responsibilities were increased when his father got sick.
His father no longer works at all on the insurance side and limits his participation to the administration of
the firm. According to Mr. Després, the succession is in a better position to ensure the transition,
especially when taking the technological challenges that brokerages must meet into consideration.
Growth of business is not easy at the present time, and the transactions are carried out at a ratio of four
times the value of commission revenues. Mr. Després believes that companies must evolve with the
market and that their successions must adapt to this requirement. "If the person who wants to sell
remains the owner, he must also adapt."
Bruno Fortin, Chairman of J. Gérard Fortin et Associés in Montreal, represents the fourth generation of
the family at the head of the company founded in 1936. He starting working in the firm during the
summer, then during his studies, specifically at the Brossard branch, created from a brokerage firm
purchased by his father. He did his university studies while working at the firm, then followed the training
required to obtain the permits necessary to sell insurance. With his brother Vincent, Bruno directs the
firm and each of them owns 40% of the shares. AXA Insurance had purchased 20% of the shares to make
the buy-back easier and this interest now belongs to Intact Insurance.
Their father, after having ascertained their interest in taking over, started the transfer by gradually
reducing his work load. He wanted to stop working when he reached 65 years of age. He is still active and
still has an office at the head office, but he doesn't come in very often. The transfer of clientele had been
done well before, and the father only looked after the management side. A solid sales team already took
care of commercial and life insurance and financial services.
The firm was the first in Quebec to have a website, back in 1996. His father was never afraid of
technology, after having purchased their first computer system in 1977. Under his reign, he continues, the
company's sales experienced very significant growth. When he decided to sell, his father was very
emotional also, but he made the break quickly, relates Mr. Fortin.
He was also able to work with the same General Manager who worked with his father. But after a while,
differences in opinion incited her to leave the firm. Other, older employees left just after the arrival of the
Fortin brothers at the helm of the company. His father still lends a hand with management. "He spends
his time making tables with performance indicators that only he understands", he says.
Yvon Lareau took the reins of Lareau Assurances in 1972, at the age of 27. In 2014, the company
exceeded $40 million in premium volume.
Mr. Lareau no longer intervenes in the daily management of the brokerage firm's activities. His children
were allowed to do their studies in the field of their choice, and it was not taken for granted that they
would join the family business. All three of his children have held positions in the company. His oldest
daughter manages another company that he owns. His son, Philippe, finished his studies at HEC (Hautes
Études Commerciales) [Superior Commercial Studies] in Montreal in 2002, and joined the firm the same
year. His sister, Marie, joined the company in 2006.
In 2007, faced with the interest shown by his children in becoming shareholders, he started the tax
planning process to begin the transfer of his shares. Yvon Lareau sold 40% of his shares in the company to
Philippe and Marie. He is very proud to say that his company has no debts and finances its acquisitions
itself. "It may not be the right way to expand, but it's my way."
Catherine Mainguy, Chairman of Mainguy Assurances et Services financiers, is the fourth generation in
the family company. Her great-grandfather, who was a merchant, started selling insurance in Quebec in
1914. Catherine also worked at the firm during her studies. Since her brother had studied in
administration, she expected him to be interested in taking over for their father, but that wasn't the case.
After finishing her studies in Waterloo in 1994, with her engineering degree in hand, she went to work for
the Ontario Ministry of Transport, since she couldn't find work in Quebec. "After the election of Mike
Harris' government, we were all let go", she states. Upon her return to Quebec in 1997, while she was
thinking of starting her own company, her father offered for her to come and work with him. "I have
never regretted my decision."
She was nonetheless afraid there would be friction, because, "We both have very strong personalities. But
we have always been able to agree." At age 55, her father bought a sailboat, and gradually reduced his
work load. He retired at 60 and sailed to the Bahamas. He is still a shareholder in the firm and stops in
from time to time. Catherine took advantage of his advice during a period of about ten years.
The Challenge of Turning a Profit
At the price at which brokerage firms are sold these days, it is a great challenge to earn enough profit to
finance the acquisitions. She acquired the shares from her father using the buy-back method. Her firm has
18 employees, four of whom take care of the financial services aspect.
Ms. Mainguy also notes that even the best succession plan cannot work if the firm doesn't pay attention
to human resource management. "I don't know who is going to replace me. But I do know what skills the
person has to have." She has three children who are still too young to know if they will make insurance
their career.
Martin Richard, of RFA Assurances, states that no matter what discipline children choose, you have to
talk to them about the possibility of taking over from you. "I studied in agronomics. My children are 20
and 17 years old, and they are studying law and pharmacy. When the youngest is 25 years old, it will be
time for them to tell me if they are interested in working in the company or not. They have to start
preparing to inherit the company", he adds. "I may work until I am 70 years old, if I am still passionate
about it, but that cannot prevent me from preparing for the future."
Mr. Richard took over from his father, who founded Richard, Francœur et Associés in 1965 in
Boucherville. Martin studied in agronomics, but started working in the firm in 1990 to help his father
straighten out the accounting. Both his brothers were also working in the family company. They left when
they realized that their father was not ready to give them more responsibilities and that he refused all the
projects they submitted to him.
Martin got married in 1994 and his wife also joined the company. In 1998, after the birth of his second
child, Martin started to sound out his father's interest in selling, but he wasn't very successful. He ended
up writing him a long letter, giving him nine months to answer to make him think about the future of the
company. "He was 64 years old and still had no idea who would take over from him. We started talking
about it." It is not easy for an owner to give up his company. "It was a very emotional subject: the
company was his pension fund, but he didn't want to choke me by asking for a price that was too high."
The transition went well, but at the same time, certain markets experienced a significant downturn. In
2002, his father retired completely, incapable of keeping up with the "paperless" adventure that was
introduced.
After having consulted accountants and tax specialists, Mr. Richard took the reins of the company in 2000.
His two brothers preferred not to join the adventure. Another colleague, who had been working there
since 1969 was given the opportunity to purchase shares in the company. "He refused, because he was
afraid I would be too much like my father. Five years later, he admitted that he regretted his decision."
This person is retiring in 2015.
He insists on the importance of properly planning the transition. "My father wasn't ready to get rid of the
company, and he went through an emotional emptiness after the sale. As for me, I am already planning
my succession." Mr. Richard sees the same problem with a broker whose clientele Mr. Richard is
negotiating to purchase. "People who have worked hard all their life in insurance, when they stop, they
are a little lost."
THE CHALLENGE OF CONTINUING SALES
GROWTH AFTER A SUCCESSION TRANSFER
To make the buy-back possible, the firm must prosper and increase its business volume. In a softer
market where competition is very fierce, the avenues for growth are not all that evident.
Catherine Mainguy, from Mainguy Assurances et Services Financiers, notes that for certain segments,
profitability is less. "Since I became shareholder, the average premium for automobile insurance in
Quebec, which was $610, is now less than $500 eight years later. That wasn't expected." Brokerage firms
do their best to be more efficient, but there are limits to cutting expenses", she says. Subjects such as the
harmonization of taxes complicate business management even further.
Ms. Mainguy underlines that the agreements with insurers have been modified, and the profit margins
given to brokers have not increased, but rather the contrary. "The market has evolved. We have to
continue to generate more revenues, but you have to invest more than before to obtain this growth. It
isn’t always easy. I don't think it's the case just for insurance, but the challenge is always there for the
entrepreneur."
Yvon Lareau, of Lareau Assurances, confirms her impression. "Over the last 25 years, commissions have
not increased, but rather the opposite. The insurers, we can scratch them a little. Premiums are not
increasing either, but salaries keep increasing."
In the insurance field, as in other sectors, consumers' needs have changed, observes Louise Leroux,
Senior Sales Manager for Quebec with RSA Canada.
Think about Strategic Planning
It is necessary to stop at least once per year and think about strategic planning, without worrying about
sales, insists Sylvain Darche of RCGT. "You must take the time to observe the market and think about the
future. It is a simple rule of governance and it allows the whole team to agree on what needs to be done."
Bruno Fortin, of J. Gérard Fortin et Associés, adds that the growth of sales volume is still possible, but
profitability is not growing at the same rhythm. "It costs more to find new business. And customers are
more volatile. We have many more new customers, but we lose more too." Succession brings new blood
and energy to the company, and is often accompanied by projects that change the brokerage firm's
development perspectives. "If my children did business like I do, I would probably be happier", admits
Yvon Lareau.
Benoît Després, from Courtiers Multi Plus, believes that the company must evolve with the market, no
matter how old the owner is. One of the changes made to the company was to stop the duplication of
tasks between the data entry clerks and customer service representatives.
"Near the end of his career, an entrepreneur is less likely to start large-scale projects", notes Bruno Fortin.
In his company, the brand image was refreshed and the offices were remodeled and modernized. Since
2004, the firm has been trying to reduce the volume of paper to a minimum and to benefit as much as
possible from technological progress. Change must be done slowly, or else the oldest employees can't
follow. "If you turn the boat too quickly, you can lose half your staff. Qualified labour is rare", observes
Mr. Fortin.
Catherine Mainguy recognizes her father's qualities, as he had already developed the financial service
aspects. "He is a very good administrator. But human resource management wasn't his strength." She
changed the staff management method, which helped her make allies within the company. "Salary is not
the only staff retention factor, there are also other advantages", she states.
Martin Richard transformed file management to make it "paperless", a change that the employees
believed was impossible. He also set about to implant direct invoicing, to limit bad debts. His
management methods are very different from his father's. "I see myself as an orchestra conductor. I work
hard on the work climate in the company."
Yvon Lareau admits that there are disagreements with his successors because of the expenses that are
increasing. "I don't have any problem with paying good salaries to producers, those who bring in
revenues." Bruno Fortin and Martin Richard laugh when remembering similar conversations with their
fathers about salaries offered and training and consulting expenses, which Mr. Lareau finds are too high.
When listening to Mr. Lareau, Catherine Mainguy reacts as follows: "That is what I miss the most, since
my father doesn't come to the office any more. I miss that." According to her, it is good to have someone
close to us who we trust, and who can force us to think and ask ourselves questions about the merits of
our decisions.
Projects
What are the challenges to be met over the next five years? Catherine Mainguy goes back to the first
challenge she talked about at the beginning of the discussion: "How are we going to continue to obtain
growth in business volume?"
Martin Richard wants to maximise the revenue potential among his current customer base. "Each
customer must have the impression that we are doing our utmost for him, his family and his business." He
feels that his greatest challenge remains to keep his entire staff happy, which is good for productivity and
volume growth.
Bruno Fortin, who is 40 years old, tries to share fairly the management tasks with his brother Vincent.
Their challenge remains the growth of business volume. "Organic growth has its limits. In personal
insurance, customers are less and less faithful", he states.
In addition to the growth challenge that is common to all brokerage firms, at Courtiers Multi Plus, Benoît
Després' team continues to underwrite policies with all insurers. "On an operational efficiency level, it is
not necessarily ideal", he recognizes.
In the case of commercial insurance, customers also are in an expense-reduction mode when their profits
are not what they should be. Yvon Lareau insists on the need to continue attacking the market. "The
customer must feel that we are there to help him better protect his estate." If he is under-insured, the
broker must notify him, he says. His greatest challenge is to resist the temptation to sell the company to a
bigger player, he states.
As a source of financing for the transfer, Sylvain Darche talks about a Succession Fund that finances the
purchase of shares by the family succession. Certain financial institutions, including BMO and Laurentian
Bank, are very active in the financing of brokerage firms. "You have to go to the bank with your
accountant, and be well-prepared. With a credible plan and a well-organized file, you can obtain
financing", insists Mr. Darche.
There are others who provide financing, notes Catherine Mainguy, including National Bank. According to
her, the quality of the file and the entrepreneur's capability of defending it allow him to obtain the best
financing conditions. The firm's profitability remains the main element that reassures lenders, she says.