Purchasing a book of business

[Guest amm19]

Does anyone have any resources our references on acquiring a TPA or a book of business? I have been presented with some interesting opportunities to potentially purchase a TPA or blocks of business from TPAs exiting the business. However, I am not sure exactly what format is traditionally used in purchasing such an entity. I inquired with ASPA, but they do not have any resources available. Any assistance would be greatly appreciated.

[Guest Gregory]

Having looked at this many times and actually done it three times, here's my words of wisdom. Every case is unique and there's no set of rules. A few 10 key things to consider...

1. Have every key person in the firm you are buying sign a 3-5 year non-compete in a 250 mile radius. Being a nice guy will only get you "sc***ed" when they set up shop next door. This will test their conviction.

2. Assume 1/3 of the business will exit in first 12 months if you are not keeping the principals. Assume 1/2 if you are buying a block rather than the firm.

3. Look at all contracts and leases. Are they assignable? At what cost? When do they expire? Do they have binding contracts with clients?

4. Look at their technology. Are their systems desirable? Are they current? Internet access? Who maintains them?

5. If you are not in the business now, you are fool to try if you don't offer daily valued 401K plans.

6.Actuarial services are a "nice to have", but don't build this business unless you are the EA (or you already have an EA). Don't rely on "their" EA.

7. Determine who their key referrals are and meet with them. What % of the business comes from them? Will they refer you business to you? How can you be sure?

8. Don't pay "goodwill" and don't pay for the "name". You are buying an income stream.

9. All recordkeepers/actuaries should be billing 3X gross salary at a MINIMUM. IF not, there's fat to cut.

10. My final thought is to clearly think through your business model. It must be scalable or labor costs will choke you.

Good luck and good hunting. 24 years in the business and no regrets.

[K-t-F]

Where does one find a book to buy? I would like to build my business and purchasing a block of clients would be appealing.

AMM19, I purchased small TPA that was retireing.... I paid goodwill ($1,000) and structured the deal to pay for the clients out of future admin fees. So far that was a good plan since some clients have departed to find a TPA closer to home. I didnt have to pay for them. (also, I gained the software of the retireing TPA.... for free, as well as his years of experience)

Gregory... Daily Val admin.... Do you offer that and if so do you have the technology in-house or do you use an ExpertPlan or the like service? I am getting mixed messages on whether I should go the daily val route or stay with balance forward admin. I am a very small TPA and do not administer large plans that may want the daily val option.

[Guest amm19]

Thanks for all the feedback.

PATA, check out various vendors like MFS or Manulife and try to become an approved TPA for their platforms. They will be a valuable business partner going forward. Plus, there is little investment in technology for their platform if you use a record keeping system that integrates with them like Datair or Relius. Daily val can be costly if you are small. Good luck.