Narrowly- Vs. Broadly-Held Stock Ownership and the Impact on Agency Value

We have found that many agencies have are on one side of the spectrum or the other when it comes to stock ownership. Whether they operate with narrowly-held or broadly-held stock ownership, can have quite the impact on their agency’s value. We hope to highlight the major differences between the two in this article.

Narrowly-Held Stock Ownership

Many insurance agencies have narrowly-held stock ownership. In most cases, the principal owns 100% of the stock and has no plans to transition the stock. Often, even if they were to plan for this transition, there’s no one internal to transition the stock to. In this scenario, there is increased risk in the business and a corresponding decrease in agency value.

The risk to the agency increases for several reasons. When the agency principal owns most of the stock, they generally own all of the key relationships with insureds, as well. The principal is the face of the agency to their clients. If they were to exit the business, there is a high likelihood that the key clients would look for another agency to serve their needs. A high attrition rate will lower the value.

When older principals own the bulk of the stock and the relationships, there is a high likelihood that the age of the book of business will be old, as well. This is another risk factor we consider in our valuation report, as there is elevated risk in an older book, as many of the clients will be transitioning out of their businesses in the same timeframe as the agency principal.

Agencies with narrowly-held stock ownership generally do not reinvest in next-generation talent and technology. Without shared ownership and an engaged next generation of agency leadership and production talent, organic growth is hard to achieve. The resulting impact of low growth will decrease agency value overall.

When the stability of the stream of renewal commissions is at risk, a prospective acquirer would assign a lower value to an agency. In such a deal, the acquirer would likely insist on a lengthy earn-out period in the deal structure. The earn-out period would entail that the outgoing principal remain involved in the agency for several years to transition the book of business to the new owners and insure a pre-set account retention rate. They would be incentivized to hit key retention milestones to earn-out a large portion of their deal.

Broadly-Held Stock Ownership

An agency that has broadly-held stock ownership has less risk and therefore increased value to a potential acquirer for several reasons.

When agency stock is broadly-held, we normally see that the key relationships with insureds are also broadly-held. Additionally, high-performing agencies will often have several employees managing each key relationship, so that if one employee leaves there is less risk of losing the account. A general rule of thumb is that no one employee should manage more than 20% of the agency’s book of business.

When agencies offer the opportunity to own stock to their next-generation employees, these employees see the potential fruits of their labor and are compelled to drive agency growth. By driving organic growth year-after-year, these agencies will increase their profitability and value. Another benefit of the organic growth mindset is that it will lower the age of the book of business and lower the risk of attrition.

Having a vested interest in the agency will change the mindset of employees from having a “job” to having a career that they are invested in. Employees with a stake in the business will make decisions from an ownership mindset versus an employee perspective. These agencies are always looking to hire next-generation talent that will help drive the business now. They are hopeful that these next generation agents will purchase the stock from the outgoing owners when it is time for them to retire.

A prospective acquirer would assign a higher value to these agencies because there is lower risk to the book of business and the renewal commissions. In such a deal, the acquirer would likely pay a higher multiple and would be more flexible on the earn-out period in the deal structure.


Agency stock ownership is a key driver of agency value. Narrowly-held agencies generally have higher risk and lower overall value. For these agencies, acting now to broaden the stock ownership of the agency will set themselves up to realize their full value. Broadly-held agencies set in place the forces to drive agency growth and profitability, while decreasing the risk and increasing agency value. When next-generation talent gets a taste of the benefits of ownership, good things happen.

If you find yourself in the narrowly-held group and would like more information on how to adjust your plans for the future, please reach out to me at and I would be happy to discuss how we can help your agency realize it’s full potential.

About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 200 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit or

The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please to discuss your personal situation.

Copyright ©2023 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved. No portion of this document may be reproduced in any manner without the prior written consent of IA Valuations or OIA. In addition, this document may not be posted as a link on any public or private website without the prior written consent of IA Valuations or OIA. 

Success Starts Here

Sign up for our newsletter today!
  • This field is for validation purposes and should be left unchanged.