Key Person Insurance plus Entrepreneurship and Empowerment

Before acquiring a business, professionals must first do some background study on the business entity. Risk assessment is one way to learn about a business, to see what potential risks exist and how susceptible the business is to them. The term "Key Person risk" tops the list of risk assessments. This key individual is someone whose presence is absolutely necessary to the business.

Cindy Fields, the CEO, and founder of Loyalty Alliance is our guest on this episode. She talks about how a company's "Key Person" influences the entire business entity. She also mentioned the people who are referred to as the company's key personnel and how businesses have been purchasing Key Person Insurance to reduce the chance of failure during acquisitions. Finally, She offers our listeners some key points and recommendations.

Key Takeaways

What is the Loyalty Alliance and what do they do?
The importance of Key Person Insurance to M&A
Who usually is the Key Person in a business?
Takeaways and advice from Cindy

Quotes

"Key person insurance is defined as insurance for an individual at the company. It's an individual whose job is so pivotal to the company that if something happens to them, the company will be greatly affected." - Cindy

"I love key person insurance because I love protecting the companies, helping companies grow, talking to the CEOs about their companies and knowing them, and making sure they have the right protective mechanisms in place to achieve what's important to them." - Cindy

Featured in this Episode

Christopher Lisle
Growth strategy advisor for the ecosystem of investors, banks, and the companies they work with (middle market).
Linkedin: https://www.linkedin.com/in/kit-lisle
Websites: Acclaropartners.com / strategicgrowthcouncil.com
Contact: [e-mail] / 703-867-7269

Cindy Fields
President & Founder of Loyalty Alliance, Inc
Linkedin: https://www.linkedin.com/in/cindyafields
Twitter: https://twitter.com/theLAIWay
Website: https://loyaltyalliance.com

Words from our Sponsors

Thanks to our sponsors Acclaro Growth Partners, a strategic consulting firm serving middle market mergers and acquisitions. You can visit acclaropartners.com. Our other sponsor, of course, is Strategic Growth Council, not the podcast, but the Peer Advisory Council slash virtual roundtable slash mastermind group for senior execs and business owners. Contemplating what an acquisition, a sale, or just strategic growth? Strategic Growth Council collaborates with participants in the M&A ecosystem, such as private equity groups, lenders, investment banks, and relevant service providers. Visit strategicgrowthcouncil.com to learn more.

Chapters

00:00 Introduction
01:46 Our guest’s background
04:38 What is Loyalty Alliance and what do they do?
10:46 How does Key Person Insurance come into play in different situations?
14:07 Who purchases the insurance for that key person?
20:13 The difference between key person insurance versus a typical insurance
23:21 The opportunities and challenges of growing her business
25:56 Takeaways from our guest
28:30 How to connect with Cindy and Loyalty Alliance

This podcast is produced by Heartcast Media
https://www.heartcastmedia.com/

Episode Transcript

(00:09):
Welcome to Strategic Growth Council. I'mkit Lyle. Strategic Growth Council is a
podcast about strategic growth and mergers andacquisitions for the middle market, but it's
also a peer advisory roundtable for seniorexecutives. We get together monthly virtually to
solve growth strategy or m and Acases. These are dilemmas that are up

(00:32):
up at night, concerns or opportunitiesthat just might not light rise to the
level of being included in a boardmeeting conversation. It's lonely at the top,
and you know sometimes there are thingsthat would you would want some input
on. So think about what questionwould you ask a room full of smart
fellow CEOs about your own business.That's what we do and as I said,

(00:55):
Strategic Growth Council is also the nameof our podcast. So if you're
interested in learning more about or organicgrowth, growth by acquisition or potentially the
sail of your business, this showwill be interesting and useful for you.
Thank you to our sponsor. We'llget that out of the way. A
Claro Growth Partners check them out atthe claropartners dot com and every episode I

(01:15):
interview a mover or a shaker inthe world of strategy, growth or remine.
Today, our guest is Cindy Fields, President of Loyalty Alliance. Welcome
Cindy, thank you very much,pleasure to be here. We always start
off with thirty maybe sixty seconds worthof background on yourself, so feel free.

(01:38):
I'd rather than doing the introd ofyou, I thought it might make
more sense for you to provide theintroduction yourself, so it's very kind of
you. Thank you. My nameis Cindy Fields. I am the president
and founder of Loyalty Alliance. Mybackground goes back all the way to woolf
Street and the good old day.So I started off in ventric capital,

(02:00):
private equity turnaround situations. It's somefinancing deals at donald Se, Lufkin and
Jenrette. Got involved in merger arbitragein the heyday period, so that was
very exciting, and then got involvedin middle market investment banking. Over time,
even though I have the fancy credentials, my orientation, even though I

(02:23):
can do the deals and the focuswas on the money, I realized that
my skill set and my interest isreally on the people. So while we
were looking at the transactions, Iwas talking to the CEOs. I was
talking to the rank and file,because when it comes right down to it,
deals are deals of entities, butentities are composed of people. So

(02:45):
my orientation as always people. AfterI went on the other side and I
wound up being advisor to people whohad been my clients, so I helped
them with the insurances, I helpedthem with the investment side, I helped
them with the advisory side and coachingthem so that they could get their deals
done. And it was always aboutwhat's important to you, what's important to

(03:06):
you as an individual. When I'mtalking to the companies that are being acquired
or thinking about being acquired, andeven when I'm dealing with the M and
A firms, what is important?Why are you looking at this company?
Who are you dealing with? Becauseit maybe the best deal down on paper,
but when it comes right down toit, a rectangular office there's four

(03:27):
quarter offices, but there's only oneparking space. Usually that's closest to the
building, and deals have broken downfor lesser reasons than who gets that closest
parking space. So now my focusis more on the insurance side, on
the entrepreneurial side, and helping tomake sure the deals get done, deals
get done properly, and on theinsurance side, to make sure that that

(03:51):
is not ignored, because many timespeople are so focused on the building and
the merging that they don't think aboutthe protecting of weird our money's actually are
going, yeah, I'm just goingto jump in there. It seems like
we have a similar background, andthat'd spent a lot of time myself with
mergers and acquisitions and strategy consulting foryou know, acquirers, primarily doing projects,

(04:16):
but at the end of the day, it's the people that's really the
most exciting or interesting components. Sonow I'm spending more time interacting with groups
of C level executives and probably forthe similar reasons to you, it's really
a lot more interesting. But broadly, what maybe describe loyalty alliance At a
high level, what is loyalty alliance? You know? I tell people that

(04:41):
we are our name. We havea sense of loyalty to our clients,
our employees, the community, ouradvisors, anyone whose world we touch,
and we're at alliance we pull together. While our focus is more on the
insurance and then we have an entrepreneurreal side it's a platform we can talk
about if you're like, uh,you know, we have specific skill sets.

(05:05):
The insurances, non bank lending,coaching, we pulled together or we're
like a lightning rod. We pulledtogether the resources that people need. I've
always been the type of person,even colored for people who come to me,
I need this, you know someonewho does that so professionally, it

(05:25):
just has come naturally to me.So rather than I tell people, rather
than pull your brother in law oreven you know, your golf buddy or
even your CPA. If you needsomething, they may know, especially the
people who you're working with professions,they may know how to help you with
what you're doing right now. Butif you're thinking about selling your company,

(05:47):
or if you're even going in andacquire your company in an area that is
not within your billy wick, youneed outside advisors who are especially list in
that. Don't go with your yourreal estate person, your real estate attorney

(06:08):
to do an M and a deal, you know, make sure you go
the thing you have. Yeah,so we help people with that. So
you've put together sort of an aggregationof experts or service providers that are pre
eminent in their particular discipline. Orfield, so that an acquirer or primarily

(06:30):
a seller doesn't have to rely onthe advice from their brother in law or
a board member who may just bean attorney for example. Right, is
that Is that a fair statement?Or would you no, that's a very
fair statement. Now I must say, you know, our area of expertise
is on the insurance side, ison the non bank lending side, is
on a certain amount of coaching.But we're dealing with people, and I've

(06:57):
dealt with some very very high levelpeople who have opened up to me.
Because people talk to the CEOs asa title. The CEOs have tremendous pressure.
If you said, it's the loneliestposition in the world. And when
you're being acquired, when your boardis pushing you to do something, when
your employees are pushing you to dosomething, where your family is pushing you

(07:18):
to do something, what do youdo? You know? So people bring
us in professionally for what we do, but I say, talk to us,
you know, tell it for useverything. We always start with what
is important to the person, what'simportant to you. It's until you know

(07:40):
what truly is important to you,you can't move forward, or you should
not move forward, because you're goingto get pushed into something that's important to
someone else and it's it could ruinnot just your company, but can ruin
your life. Absolutely. Yeah.This is interesting because we've had several conversations

(08:00):
with acquirers who are private equity individuals, experts, professionals who have talked about
some of the key risks that theyface when they're acquiring a privately held business.
And at the top of the listis key man risk, key person
risk rather and the risk of therelationships that they may or may not have

(08:22):
with key customers. But so Iwas looking forward to focusing here on key
person risk insurance because it's an areathat we're most of us have heard of
but may not know enough about tohave formed an educated opinion. So,
you know, maybe a good placeto start is who would be a typical

(08:43):
client of yours or who has beena typical client of yours. Well,
it comes from both sides of thetransaction. On the private equity side,
you work with a number of privateequity firms because as they acquire companies,
as you had mentioned that the greatestrisk is the key person because you may
be buying a company the bricks andthe mortars or the intellectual side. But

(09:07):
somebody's got to run the company,and generally there's that one or two people
who are essentially are identified with thecompany. If something happened to them,
what do you have? So smartprivate equity people who are interested in not
just having the acquisition but having anongoing concern try to protect that risk,

(09:33):
protect you leverage their acquisition, andthey invest in key person insurance. Key
person insurance is defined as insurance onan individual at the company, not always
the CEO, many times it is, most times it is, but it's
an individual whose position, whose jobis so pivotal to the company that if

(09:56):
something happened to them, what wouldbe left? So cannot replace the person,
but you can leverage the loss withcash, and that's what key person
insurance does. Yeah, that's agreat explanation, and let's talk about that
worst case scenario. I'll throw outa few scenarios for our audiences humor and

(10:18):
benefit. Key person X has adivorce and goes a little cuckoo mentally and
emotionally. Key porson why gets hitby the proverbial bus key person Z just
doesn't get along personally emotionally with thenew acquirer and just they're just sort of
at laggerhead. So how does keyperson insurance come into play or does it

(10:43):
in the scenarios that I just described, Well, in some situations it's more
the by cell in funding the bycell agreement because for the key person,
the person goes on the CEO goeson a skiing trip. And there's too
many stories like this in the news. Loses control, skis into a tree.

(11:05):
End of the person. You know, it could be someone who's in
their thirties, it could be someonewho's in their seventies. What happens to
the company there, the key personinsurance would provide, would kick in,
would provide the cash to help findreplacements, to fund the acquisitions of you

(11:28):
know, keep the business going inone way, shape or form, to
buy the shares that could be outthere that the company kind of who owns
the key person insurance generally is thecompany, you know, how they can
keep the company running so that thereisn't the copanic in the street when this
it gets out that this key personis no longer there. Now when you're

(11:50):
talking about the someone going cuckoo ordivorce or things like that. Many times
the insurance is in a by cellagreement, and that I tell people you
really want you may be best goingto a partnership. You may be best
buddy. Now is because so manycompanies start in a garage and best buddies

(12:16):
going to went to elementary school together. They're going to go out in a
wonderful way and they build their companyand everything's hunky dory. Very they have
kids, something happens to the otherpartner, do you really You may love
your partner, but if you reallywant to be in business with his crazy
wife and kids, you know youwant to make sure if something happens to

(12:37):
your partner that you can buy outthe years. That's generally done in a
number of different ways. The waywhere you can leverage your dollars most effectively
is generally life insurance. Now there'sthe other situation. What happens if the
person whose scheme goes into the treeand he doesn't die, but he becomes

(13:00):
totally immobilized. He cannot function anylonger. Same thing with the partner doesn't
die, but he can no longerperform the duties that he had before.
What do you do? Well,that's still key person insurance. But it's
a key person disability policy. Toomany people focus on they think key person

(13:22):
insures, they think key person lifeinsurance. That is you most effectively,
Yeah, if somebody dies, butthe realities of life is that it doesn't
always wind up in death, andyou'll have to be prepared for that possibility.
And in today's world with modern science, that eventuality, and you need

(13:43):
to protect yourself as a partner,and you need to protect yourself as an
investor in the company. And Cindynaive question for you is key person insurance
typically purchased by the company for whomthe key person works, or by an
acquirer or a board who is responsive, who typically is your your client.

(14:07):
It generally is on two sides.The private equity entity they're acquiring, the
company, they'll bring me in,and it's generally the company that owns the
key person insurance. Now that said, sometimes there's a loan that's associated with
the acquisition, because many of thesemost acquisitions are leveraged acquisitions. That entity

(14:33):
that is loaning the money wants toprotect their investment. So even though the
company owns a policy, there's acarve out for that portion. You know,
whatever millions of dollars. So let'ssay it's a ten million dollars policy,
there's five million dollars in debt,that five million dollars is protected,
and if they're that eventuality, itwould go to that funder. On the

(14:58):
other side, many companies come tous, especially in the middle market and
lower middle market, and they realizethey're growing now, and they're smart,
and they're looking at do they havethe right structure in place to grow effectively
and do they have the right resourcesin place to ensure their growth. Those

(15:20):
people definitely are the types of peoplewho need the insurances. They need the
key person insurance because now they're protectingthemselves. So when they're protecting themselves in
a number of different ways, ifthey choose to go into the market,
one of the questions that an acquirewould have is their key person insurance in
place, because that shows a certainunderstanding by the company that they're doing the

(15:45):
right thing and that this is acompany that has a certain structure. They've
thought it out. On the companyside, they're growing, go ahead,
sorry, you know. The companyside, they're growing, and it's just
makes sense for them to have keyperson insurance. The board may want them
to have it, or they realizenow that they want to protect the company.

(16:06):
They want to protect the investment theyhave in their company for their families,
because they may have most of theirwealth in the company and they're getting
of an age and they want tomake sure that their legacies are in place.
And that's not for the sixty yearold just it's it's there for anyone
who's building out their company that wantsto protect what it is that they've grown

(16:29):
out. So if again this isthis is not my world, so I'm
asking some naive questions here, butit sounds like some of the motivators of
purchasing key person insurance might be alender that assumes that with that key person
unable to perform their duties for whateverreason, the business goes bankrupt and they

(16:55):
want their money back. That's scenarioone. Another scenario is we need a
replacement in order to continue to grow. And another scenario might be, um,
you know, the family of thekey person needs protection of some sort.
But there's other motivators too, oror would you add anything to what

(17:15):
I just said by the board ofdirectors, there are many times the motivators
they want to protect because they're theboard of directors, they have a future
responsibility to the company. They wantto make sure there's key person insurance in
place, make sure that the companykeeps going and it's not necessarily bankruptcy.
It's just to get the moneys backthat the lending institution had provided in the

(17:41):
acquisition. So it's to me,I love key person insurance because for me,
it's I love it protecting the companies. I love helping companies grow,
and I love talking to the csabout their companies and getting to know them

(18:04):
and making sure that they have theright protective mechanisms in place to achieve what's
important to them. Also involved atM and A. It's a dance because
many times on the private equity side, Okay, company was just acquired,

(18:25):
private equity firm ones ten million dollarsor key person insurance, the key executive
is still there. They're not worthyou know, they're worth mine. They're
not worth ten million dollars. Youknow they're they're there. Over time,
they'll be worth ten million dollars.Now you have this corporal used to be
Wolf Street, but most it canbe defined anywhere key private equity, who's

(18:47):
putting a price on their head.They are now worth ten million dollars dead
to somebody that you know, theyjust went through an acquisition, their lives
are aging. Get some of themmade some money in the acquisition. Usually
the prize is in growing the company. And now this Wall Speak firm comes
in and is saying, this iswhat I want on you your word X

(19:12):
millions of dollars dead to me.That's sobering to some people, you know.
So for me, it's fun forme to be in the middle because
I get to explain. I getI was on the private equality side,
I was on the acquisition side.It's about creating that cohesion between the entities

(19:36):
that is still growing and back tothe people skills that you obviously have.
And so a couple of questions rolledinto one. How do you find your
clients? In other words, howdo you gain introductions to these companies or
the private equity groups. And thensecondly, is key person insurance just like
any other type of insurance in thatthere's a carrier and there's a you know,

(20:02):
a broker or a representative. Areyou sort of the representative and you
choose from a variety of different carriersor how does that work, so we
represent the clients. So we representI always look at the clients as person
who's being insured, even though theclient maybe the person who wants the insurance.

(20:23):
We find out where the need is. You get a sense of how
much they need. We get asense of the person who's being insured,
because when you're buying insurance, it'son that person and the risks associated with
ensuring that person's light. And youknow, it's not just about did you
have cancer, do you smoke ofyou know, anything having to do with

(20:48):
health issues. It has to dowith hobbies. You know, do you
do skydiving, do you do underwatersports? If so, where you have
to realize there's a someone there who'sensuring your life. They're not turning your
death. They're insuring your life andthey want to you alive and they want
to they associate the risks associated withall the different things that you're doing.

(21:12):
We find out about the person who'sbeing insured, and then yes, we
go into the market. I donot work for an insurance company. I'm
totally independent, which means based uponmy knowledge now of the clients and how
much the persons be insured, howmuch is being requested. I have a
team of people who goes out intothe market, goes out and talks to

(21:36):
the different insurance companies. We doa preliminary assessment to see what we can
get because we don't want we don'tmention names of people until it's time to
actually get the insurance, and thenwe find the best carrier to address the
risks that are associated with that person. So it's not work when a myriad

(22:00):
number of characters carriers all of thecountry and I have to say all of
the world because in some situations wehave to go overseas, right right,
And this is this a primarily aNorth American phenomenon that the instance of key
person insurance or is or is ita global Is there global demand? It's

(22:22):
global. I mean our focus isprimarily in the United States, but we
have to realize a company here.We've got to conferences and things that are
going on overseas. The baby boomersstarted companies and now things are happening with
those companies. People are starting companiesall over the world. It's businesses or

(22:44):
businesses. People are people. Themarket is the market. It's the same
or ever with different nuances anywhere yougo. And it's about protecting risks.
So, Cindy, you're providing avaluable service to the merger an acquisition ecosystem.
You're sort of lubricating the cogs andthe wheels of M and A to

(23:07):
make sure that the risk is minimizerhas taken off the table or that particular
type of risk. What are theopportunities that you see for growing your business?
What are the challenges that you facein growing your business? The opportunities
are really endless because what we dois so needed and it's just a question

(23:30):
of people finding us and are beingable to help them. We find people
to answer a question that you hadasked a bit ago, it's word of
mouth. I've been in the businessa long time. I have my own
way of doing the business. LoyaltyAlliance is different than just been any other
firm out there. I'd like tosay it's different than any firm out there

(23:53):
because our orientation is what we getthe job done, and we are very
proficient at getting the job done.My background is different than just about anybody
else in this industry, and andwe we're more than just what we're called

(24:17):
in to do. We do whatwe do. Sometimes it has to be
done real fast. We'll you know, direct, we put the blinders on
and we do it has to bedone, but we bring we bring ourselves
to the table. So you know, it's the challenges or like anybody else's
challenges, staying out there, makingsure people know that we exist, um,

(24:41):
and just finding the right people.Yeah, when it comes right down
to it, not finding the rightpeople for for us and our team,
but we want to make sure werepresent the good guys. Now, the
good guys are not always the peace. You know, it's not defined what
side of the table you are.But there are a lot of characters out

(25:07):
there who are trying to sell theircompanies and you do things that they shouldn't
do. And there are a lotof pe firms and venture capital firms that
are trying to go in there andmake the quick. Fuck. I don't
want to work with the bad guys. We want to work with quality people
who are in the business for theright reasons, who want to grow organizations,

(25:29):
who want to help people, whobelieve in capitalism, and who are
doing their jobs the right way.Yeah. I was going to ask,
is there one thing that you wouldwant to make sure that our listeners are,
our audience takes away from this conversationthat maybe hasn't come out thus far.
Any particular lesson or takeaway that youwanted to make sure was shared may

(25:55):
have already come out. I don'tknow. I think the greatest focus,
especially when you're in a physician,to be acquired the works on both sides
a long conversation with yourself. Itgets real exciting when you have acquirers come

(26:15):
at you, when they start growingmoney at you. And you know,
especially for people who have grown theirbusiness for the ground up, who may
have started with nothing and now allof a sudden they're the pretty girl at
the party and everybody wants to dancewith them. But what do you really
want? Is it the money?Is it staying on at the company,

(26:40):
is it leaving a legacy? Isit? You know, just sit down
with yourself and figure out what istruly important to you. Write it down.
You don't write it down, itwon't happen because you're going to get
caught up in the game again,because it gets to be a game.
And make sure you are represented.What you want is represented at the table.

(27:00):
Now that has nothing to do thekey person insurance. That has to
do with making sure what you wanthappen on the M and a side as
well. Make sure you know thismay be the most attractive company that's come
across your table, but does itfit your portfolio? Does it fit in
with what you want to do,because you may be able to buy it,

(27:22):
but then what are you going todo with it? You know,
it's got to be a great towhat you're doing. And then I used
to say, don't let the othercome to us for the key person insurance.
Yeah, I used to say,don't let the for sale deal of
the moment that just happens to landin your lap. Dictate your strategy,
have a have a strategy in placeso that you know you know it when

(27:45):
you see it. You know thepretty girl when you find her, all
right, just to use that analogy. But the point is to develop a
set of criteria, either as abuyer or also as a seller in terms
of what you're looking for. Whatdo you want so you know a fit
when you see it? Last questionand before you go on. I mean,

(28:07):
we can help people with that aswell, because I do have I
do do some coaching, and partof the coaching is to sit down and
go through the conversation with people andthen help them figure that out. So,
how can our audience find use inthe Loyalty Alliance. You're the president
of Loyalty Alliance. How what's thebest way for them to find you?

(28:30):
They can come to our website Loyaltyof an l Loyalty Alliance dot com.
They can send me an email atSea Fields at Loyalty Alliance dot com and
I'm assuming you're going to provide thisinformation or just call me. I can
give you the number two one twofive seven zero one two one two and
it starts with a telephone call.Never be shy about picking up the phone.

(28:53):
Nowadays, people are in so muchinto text, there's so much into
emails. I'm into one on oneconversations because when you're buying a company,
as it comes down to that basicfact that we started, it's people.
You need to have a conversation withsomeone. Don't just look at the numbers,
don't just look at the emails.Everything is interpretive when you're looking at

(29:15):
words on a piece of paper.You need to have a conversation. And
if you want to have a conversationwith me. I love talking to people.
I love helping people. I lovedirecting people when they when I can't
help them, I'll help them findthe resources, so call me. That's
an excellent point to end on.Is right where we started with helping people

(29:37):
and working directly with people, andyou certainly have the background and the skill
set to be able to do justthat. So thank you very much,
Cyndia. I appreciate you joining ourpodcast, so thank you, and thank
I thank your audience, and Ialso wanted to say thank you to our
audience as well. And for morepodcast asks, go to Strategic Growth Council

(30:03):
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