Interview with Philip G. Lubinski, CFP. Leading Retirement Income Expert is First to be Featured in New Interview Series: America’s Elite Financial Advisors

philToday marks the introduction of my new interview series called America’s Elite Financial Advisors. I’m excited about these new series for many reasons but none more so than the opportunity to provide a platform to individuals who possess insights and knowledge that is too often insufficiently appreciated.

The subject of the inaugural interview is a man who counts me among the members of his fan club. Phil Lubinski is both a friend and business partner who has journeyed down the retirement income highway with me since 2003. Actually, I hitched a ride. Phil has been successfully navigating that roadway since 1984. It’s an obvious understatement to say that this was well before most had discovered the business opportunity in retirement income distribution.

It was Phil’s early work in crafting a time-weighted, laddered asset allocation strategy designed to generate sustainable, inflation-adjusted retirement income that led to the development of Wealth2k’s The Income for Life Model™ (IFLM).

Phil has brilliantly led the advisor education efforts around IFLM. He has completed training of more than 4,000 FAs using his one-of-a-kind approach to income distribution education. Focusing on the practical investment and income tax techniques that advisors are required to master in order to properly place retirement assets into a distribution mode, Phil’s IFLM Training Institute is hailed by advisors for the practical guidance and planning techniques they are taught. That advisors so easily relate to Phil is a key element in his ability to establish credibility with professionals who recognize that they are learning from one of their own.

A devoted Colorado Rockies fan (and season ticket-holder), I’m unable to easy Phil’s pain in seeing his favorite baseball team lose the World Series to the much superior Boston Red Sox. But I can make it possible for more people to get to know the man I refer to as the “Pope of Distribution.”

MACCHIA: Firstly, Phil, my sincere thanks to you for agreeing to have this interview with me. As you know, this is the first in a new series of interviews I’m calling America’s Elite Financial Advisors. I believe it’s important to gather the perspectives of those advisors who have managed to reach the highest levels of success. So, I’m happy you are the first to be interviewed. Thank you for that.

Phil Lubinski: It can only get better from here.

MACCHIA: I’m an optimist! Let me begin by asking you what you believe are the qualities of an elite advisor?

Phil Lubinski: Wow. You know I hope it’s not defined by the amount of commissions they generate on a yearly basis because, while that’s a measure of success, I really think the elite advisor is the one that has a relationship with a their clients that is far more than just transactional; elite advisors have a problem-solving relationship including advice and solutions in areas that have absolutely nothing to do with a product sale. A significant indicator of an elite advisor is the retention rate of their clients.

One measure of client retention was the National Quality Award. It was given to advisors who had an 85% or higher persistency rate, which correlates directly to client retention. Of all the top “production” awards I’ve received, my proudest accomplishment was receiving the National Quality Award for 20 consecutive years. The fact that I could retain more than 85 percent of my clients in good markets and bad spoke to the true nature of the relationship.

MACCHIA: You bring something up that resonates with me, Phil, because of my own background- having also entered financial services through the insurance door. And what you’re describing that doesn’t exist anymore is partly, if not totally, due to the fact that, along the way, insurance companies became product manufacturers with few exceptions. And the kind of development of not only the talent of salespeople but also, in a sense, the values of salespeople were lost. I wonder if you see that as being true?

Phil Lubinski: I see it as true and not necessarily in a malicious way. Like you, my roots also began in the insurance industry. My biggest decision 30 years ago was trying to select the best agency to join. In Denver, there were three very prominent insurance agencies that I interviewed; Northwestern Mutual, New England Life and State Mutual. Although all three companies had extremely competitive products, I chose State Mutual because its General Agent, Bernie Rosen, had a legendary training program. Not only was it a comprehensive 3 year program, but, more important, it instilled the “values” you referenced in your question. It was a true “needs” based approach that always placed the clients’ needs ahead of your own.

What I witnessed beginning in the late 80’s and through the 90’s was the explosion of the variable products combined with the greatest bull run in the history of the U.S. stock market. Planning and problem solving came to a screeching halt. Recommendations were no longer “need” based, but rather, “greed” based. Cost and performance became the mantra, insurance companies de-mutualized, stockholders needs seemed more important than the policyholder’s needs.

As the financial services industry focused more and more on profitability, budgets were cut, and one of the first things to go was advisor training. Unfortunately, the training was turned over to the product wholesalers. What I’m seeing now as we roll out the Income for Life Model™ nationally is advisors hungry for training. Advisors desperately wanting to learn how to sell the process, not the product. It has been an eye opener for me.

MACCHIA: Your answer raised many excellent points, some of which I want to come back to later- specifically in terms of retirement income. I want to stay on the issue of wholesalers for a minute because wholesalers are individuals that I know contact you and your associates quite often. And they are in the vanguard of distributing ever changing, ever more complex and ever more diverse products to advisors. How do you and your colleagues view wholesalers today? Do you like the process? Do you think it works? Do you think it’s broken? What is your general take on the whole notion of product wholesaling?

Phil Lubinski: I don’t know if our OSJ is a typical office or not. We have 11 advisors with more than 15 professional credentials and an average tenure of 17 yrs. We allow very few wholesalers to make presentations. The days of T-shirts and golf balls are over. We’re tired of hearing about yield and riders. Virtually every quarter there’s the new and improved rider, the “simple” single product solutions, the “my” fund beat “their” fund mentality. Even more alarming is that the products and features are changing so quickly that the wholesalers aren’t being trained adequately and several times have given us inaccurate information. We specialize in retirement income planning. We know there is no single product solution. We want wholesalers to show us how to strategically combine several products to meet our client’s needs. We’re not interested in hearing them “slam” their competitors. So, in answer to your questions, we don’t like the wholesaling process and through no fault of theirs…it is broke. Consequently, they bring little value to our table.

MACCHIA: Well, let me ask you this. In terms of products, in terms of the stories that you’re hearing about products and product innovation, do you view it that true innovation is occurring? Or do you view it that incremental changes are being made? Or do you find that it’s something different?

Phil Lubinski: It seems like many of the innovations are the same thing with a little different wrapper. There’s this kind of herd instinct out there though and I hate to keep picking on the annuity industry. The mix of business in our office is pretty equally spread between insurance, mutual funds, and advisory fee products. But on the annuity side that certainly has been where the changes have been the greatest. But what happens is every few months there’s “Here’s our new and improved rider. The one you sold your client six months ago (that was the newest and best thing then) isn’t as good as this one now.” And when there’s any play to that rider then there’s ten other wholesalers coming in saying, “We got one too, but here’s why ours is a little bit better than theirs.” It’s what happened with disability income insurance back in the early ‘80s.
The companies got so competitive trying to make their definition of disability unique that they almost put themselves out of the business. And now the annuity income riders have become so complicated that the wholesalers presenting them don’t understand them. What is more frustrating to us is that when a “new and better” contract comes out, the existing policyholders are not given the opportunity to exchange their contracts. It’s becoming more like the computer industry….”why buy one today, there will be a better one tomorrow”.

Are they innovative? I guess so, since prior to the income riders, your only choice was to take a systematic withdrawal and run the risk of over withdrawing and running out of money, or annuitizing the contract and giving up access to all your principal. They’ve played no role with our existing retired clients who have the traditional retirement with pensions and Social Security. They already have their base of guarantees and don’t need to be buying any more guaranteed income stream. But certainly those boomers moving into retirement without the guaranteed income streams their parents had definitely need a percentage of their income guaranteed for life. But certainly not 100%. In other words, the guaranteed income riders are potentially part of an overall solution, just not the only solution.

It’s kind of interesting that in 1952 a guy named Harry Markowitz suggested that diversification was a proper strategy for wealth accumulation. It was almost heresy to suggest such a thing but 40 yrs. later he was awarded a Nobel Prize. Today, diversification is a household term. Why wouldn’t the same diversification strategy work on the distribution side of wealth? Why would a retiree NOT diversify their income sources? Why not have a combination of income sources that offer guarantees, market opportunities and insurance against premature death, disability and longevity. Wrap all of these features and benefits up into a single product and now you have innovation. Until that happens, retirees need to diversify their income sources with a strategic mix of products. I just hope it doesn’t take 40 yrs. for this message to become widely accepted.

MACCHIA: Right. Well let’s talk about that. Let me begin with a compliment.

Phil Lubinski: I like that.

Macchia: One of the things that I often times- and publicly-say about you, Phil, and I know you’ve heard this before- but I’ll repeat my belief here that, after knowing you for a number of years now, and after working with you to develop solutions for retirement income, in my judgment no individual in the financial services industry has a greater practical, real-world understanding of the challenges associated with converting accumulated assets into distributed income than you.
Phil Lubinski: Thank you. You’re on a roll, keep going.
MACCHIA: Well, I’d like you to comment on a few things. One key thing that I have learned about retirement income planning is a phenomenon that I see repeating itself in the retail space over and over again. It’s financial advisors coalescing around philosophies or as I describe them “religions” of retirement income. There’s the religion of systematic withdrawals. There’s the religion of lifetime annuitization. There’s the religion of lifetime annuitization linked to, say, target date retirement funds. There’s the religion of laddered strategies- time weighted strategies. There is the religion of variable annuities and GMWB riders. I wonder if you see it this way? And what you think the ultimate conclusion of all this is going to be?
Phil Lubinski: Yeah, the religion analogy is a good one in that most religions will have a core belief and then they all have a different view on how to practice that core belief. Consequently, I don’t necessarily think that there’s a right religion and a wrong religion.

But more important, advisors have to develop a religion of retirement income they believe in and practice it. They need to stop trying to practice all of them simultaneously. When training advisors I jokingly say that you can’t go to the Synagogue on Saturday and Mass on Sunday. It’s not because one is right and the other wrong, it’s just that you can’t follow both. Once an advisor decides which religion of distribution they are going to practice, then confidence and passion follow. I’ve never met an “elite” advisor who wasn’t passionate about their work and confident with their recommendations.
As you said there are several “religions”…..systematic withdrawals, annuitization, segmentation, laddered securities, dividend/interest sweeping, etc. They all work, just some more efficiently than others. I’m obviously bias to the Income for Life Model™ because I began developing it over 20 yrs. ago and have used it to help hundreds of my clients retire. All I know for sure is that “churches of distribution” are going to be popping up on every corner and advisors better do their homework and understand the pros and cons of each. Additionally, we as advisors, better not lose sight of an extremely important obligation we have to our clients which is “knowing them well” and in some situations protecting them from themselves. The best intellectual solution may turn out to be the worst emotional solution.

Some retirees need to have surrender penalty fences built around their financial house. Others may need more guarantees. Income riders may give certain retirees the courage to take market risk with the rest of their retirement money. Which religion is best for boomers transitioning into retirement? I guess we won’t know until the last boomer dies. All I know is that I’ve never had a client who followed my religion miss a monthly check or go broke. Let me give you a couple of “real life” examples of human behavior dictating decisions and products more than intellectual analysis.
A couple of years ago I had a client who was retiring and given the option to take her pension as a life income or a lump sum that could be rolled over into an IRA. Based on the amount of the lump sum vs. the life income with 100% survivor benefit, it was mathematically clear that she would be better off taking the lump sum. The next day, she called to tell me that she had decided to take the life income with the survivor benefit instead. When I asked why she had changed her mind, her response was “I couldn’t share this with you last night when my husband and I met with you, but my husband is a habitual gambler. If I took the lump sum and then died before him, he would take the balance of the account and be broke in a short period of time. If I leave him an income stream instead, I can’t stop him from gambling it away, but at least the next month he’ll have another check”. Intellectually and mathematically her decision made no sense, but emotionally, it was the right decision. I just had another case where a client of mine received an inheritance and wanted to invest it. I recommended an annuity.

One of my associates asked why I would recommend an annuity to a single person who is only 50 yrs. old. I responded by explaining to my associate that in the 20 yrs. I’ve been working with this client the only wealth he has is in his 401k. He is constantly in debt (even though he has always said he was going to pay it off), he refinances his home every time there’s equity in it. The only monies he leaves alone are the accounts that he can’t get without big penalties. As advisors we think that our most important responsibility is to protect our clients from taxes and inflation. Sometimes, our greatest responsibility truly is to protect them from themselves! I kid my clients about my T.I.U. protection plan, telling them that part of my job as their advisor is to protect “your” money from Taxes, Inflation and “U”. Because I find that sometimes individuals do more damage to their wealth than taxes and inflation combined. Only by having a planning and problem solving relationship and knowing our clients “well” can we make the proper recommendations. Elite advisors have such a relationship.

MACCHIA: Well I think you raise some key insights, Phil, and it leads me to ask you why, beginning in 1984, you focused on the development of a time weighted asset allocation model that has become the foundation of today’s The Income for Life Model™ program?. And I gather it’s because of the experiences of working with real people at ground level. Because you saw the dimensions of that emotional problem firsthand. And I assume saw that that particular strategy helped minimize the negative effects associated with emotionally-based investment decisions. I don’t mean to put words in your mouth, but, is that how you saw it?

Phil Lubinski: The Income for Life Model™ evolved totally from day to day, one-on-one work with my clients. It literally stems from being in the “trenches” and dealing with the unpredictability of human behavior and changing events in a retiree’s life. It is, to some extent, an academic/intellectual model because you have to mathematically validate it and prove that the assumptions made are reasonable. But, currently, it is the only strategy in the market place that can easily adapt to retirees changing needs.

It’s nice to lay out a long-term financial plan with spreadsheets projecting income and expenses for the next 25 or 30 years. But, here’s reality: in the 30 years that I’ve been in this business I’ve never had a retiree spend what they said they were going to… I’ve never seen rates of return be exactly what we projected…and, certainly, unexpected expenses are common place. Spreadsheets are nice, but, at best, they are an indication of the future, not a precise predictor.
What’s evident to me is if you’re going to design a retirement income distribution strategy it better have tremendous flexibility and a regular process for review and re-evaluation. This goes right back to the relationship with your client. Each year we formally review the model and the client’s goals and objectives. We’re not chasing the highest yields, not focusing on new sales, but we are constantly “fine tuning” the plan. Adapting it to changing circumstances, not changing markets. Single product solutions will never provide this type of flexibility. As far as I can tell, the Income for Life Model™ is the only strategy in the market place that has this type of flexibility and a 20+ yr. actual track record…not a hypothetical one.

MACCHIA: Next, I’d like to ask you about other advisors. You are very fortunate to have possess a wealth of experience in income distribution planning through your years of implementing with your clients, and that’s an experience framework that 95 percent of advisors do not share. Now I know that part of your time is devoted to training other advisors on income distribution planning. What are the things you’re telling them when you talk about the income distribution opportunity? And what do you see or observe among these other advisors in terms of how you think they are relatively prepared or unprepared for this business opportunity?

Phil Lubinski: I believe they are more unprepared than prepared. This was documented in a study a few years ago by Cerulli and Associates concluding that neither the industry nor its advisors were prepared. The challenge is how to train and arm an advisor with a solution that has moving parts and has the kind of flexibility that I personally feel is necessary. For some advisors the learning curve becomes so overwhelming that they revert back to doing things the same way they always have or seek out a simple, set it and forget it, single product solution. That’s very bothersome to me. I’ve actually been told by some advisors who have attended my training classes that wholesalers were not only sitting in the audience, but have approached them within a day or two telling them that the solution really doesn’t need to be that complicated. And, furthermore, assure them that their product will accomplish everything a multiple product solution, like the Income For Life Model™ can… with a single application.
Damnit! This is someone’s life savings we’re dealing with. It’s not simple

MACCHIA: Right, right. Tell me about the training that you do. What form does it take? How long does it last? What is the reaction among the advisors you train? What do you see that advisors are able to achieve after the training that they weren’t able to achieve before?

Phil Lubinski: I think the biggest advantage of the training is it’s one of their peers training them. I’m still in the trenches with them and I’m talking to them at their level. It’s not coming from the academic on high. It’s not coming from that person that’s never met with a single client but thinks they know what that clients needs. So the reaction is very favorable. I relate well with them because I am one of them. And the ah-ha that has that come out of the training is– I really see it now. I get it.

You know, ten years ago there was a sense that things never needed to change when you transitioned from accumulation to distribution. It was a seamless transition. You just kept doing it the way you were doing it on the accumulation side…in reverse. So if I successfully dollar cost averaged into the market, why wouldn’t I dollar cost average out. Then, the horror stories started coming out during bad markets of people going broke.

The result of advisors attending my classes is they understand that the strategies used to distribute wealth are inherently different than those used to accumulate wealth. They believe that multiple products must be strategically combined. They understand the importance of annual reviews. They appreciate the depth of the relationship I have with my clients. I know the class made an impact when an advisor says to me “I’ve been doing retirement income planning for my clients, I just didn’t realize I’ve been doing it wrong.”

MACCHIA: I want to turn the conversation toward products for a minute, and begin with a discussion of annuity products. Having come from the insurance business you’re very, very familiar with all types of annuity products and I’m sure you recognize that the annuity industry is navigating through what is probably the most hostile marketing environment it’s ever faced. Certainly in my 30 years I’ve never seen anything the equal of it. I wonder how you view annuities today? Are you using annuities in your practice? And how do you perceive that your clients may be view annuities?

Phil Lubinski: Unfortunately, because of the publicity around the abusive sales of annuities, the vast majority of clients have a bias against them when they come in. An important part of the process with the client is to educate them that annuities aren’t inherently bad as long as they are positioned properly. I always try to give them “real life” examples they can relate to. A good one is comparing annuities, or any other financial product, to prescriptions that a doctor might recommend. I tell my clients that most prescriptions aren’t “bad”, but there are certainly some that are “bad” for you. If, after understanding your goals, objectives, tax status and risk tolerance, I believe an annuity is appropriate…I’ll recommend it. If not, I won’t…pure and simple.

We have an extremely proud generation of boomers moving into retirement. For some, their biggest fear is outliving their income and becoming dependent on their children or the government. Obviously, annuities are the only financial instrument that can eliminate this concern. Once again, I don’t see them as the only solution, but certainly use them as part of the overall solution. It’s funny (not really funny). I’ve listened to a couple of radio shows. One tells the listeners that annuities are good and mutual funds are bad. The other show says mutual funds are the only answer and annuities are evil. I’ve been told that the guy doing the mutual fund show is not insurance licensed and the one doing the annuity program is not securities licensed. Yet, the poor listener believes they are hearing objective advice. How often do you hear a news story about the merits of an annuity? How often do you hear about the spouse whose husband or wife died after the 2000-2002 market crash, but was paid the pre-crash values? How often do you read about the 92 yr. old still receiving monthly income from an immediate annuity he bought 25 yrs. ago? All the time I hear people say “insurance is a bad investment”. My standard answer is “you’re right, and investments are bad insurance”. Why don’t we decide together what is good or bad for YOU, not what someone writing an article thinks.

MACCHIA: Right. Well said.

Phil Lubinski: Just more words than it should have been.

MACCHIA: No, no. Not at all. Let me ask you about the role of RIAs which have changed and expanded over recent years. When you look at the world of RIAs from your vantage point how do you see it?

Phil Lubinski: I see a lot of confusion from advisors trying to understand the RIA business. Not knowing whether to register their own or operate under their broker dealer’s umbrella. Not receiving a lot of guidance as to the responsibilities and liabilities of being one. Every advisor would love to have 40 or 50 million under management and receive advisory fees year in and year out. Certainly having those fees is a financial comfort to the advisor and creates “equity” in their practice that can be sold to a transition partner. In theory, it brings more objectivity into the advisor/client relationship and certainly a more structured review process with your clients. Financially, it is very difficult for the “commission only” advisor to transition into a fee structure. The beauty of the Income for Life Model™ is it is best funded with a mix of fixed commissionable products and investment portfolios that can easily be placed in advisory accounts.

If an advisor is going to focus on retirement income planning there needs to be a commitment to regular reviews with your clients. If all the advisor recommends are first year commission products, then how can they possibly fulfill their ongoing commitment with no continuing revenue? Additionally, why would a junior advisor want to purchase a practice that requires ongoing servicing with no compensation? It’s interesting, when I first started in this business at 28 yrs. old, new clients would wonder if I would survive. Now, at 58 yrs. old, my clients wonder if I will still be reviewing their retirement income plan for the next 25 yrs. And, if I am, what went wrong with my own retirement plan? Three years ago I began a 10 yr. business plan to introduce my clients to my transition partner who plans to work another 20 yrs. We have a business agreement for her to purchase my practice based on the value of the reoccurring income.

Having a portion of their income model in investment advisory accounts easily establishes the purchase price. More important, it gives my clients peace of mind knowing I have a practice continuation plan. Also, they have this 10 yrs. to get comfortable with my partner. Being able to operate under an RIA is beneficial to my clients, my transition partner and me.

MACCHIA: Let me ask you about another RIA-related development of recent vintage. That is, the notion of insurance agents who are being solicited into RIA status. The effort seems to be aimed at annuity agents who may be unhappy with broker-dealer incursion into the equity-indexed annuity business, and, or, generally-heightened supervision by broker-dealers. But the “pitch” that’s put forth is that they become RIAs, essentially cutting their practice down the middle, becoming RIAs for investment activities and maintaining the traditional insurance license and relationships on the insurance and annuity side. Do you think that’s a practical model? A model that has the requisite integrity to be viable over the long run?

Phil Lubinski: Any business model that is focused primarily on commissions and the avoidance of supervision is fatally flawed.
MACCHIA: Let me ask it another way. Agents by definition are fiduciaries for the insurance company they represent. They are agents for the company. RIAs are fiduciaries to their clients. Do you think it’s possible to be both with the same client?

Phil Lubinski:
That’s an interesting question having been in the “captive” world and having my own RIA at the same time. Fortunately, the company I was affiliated with had a “full” product shelf and the amount of proprietary sales that were required to maintain benefits etc. was a small percentage of my total production. Certainly, their proprietary products were competitive or I would not have been with them. Bottom line, by always doing what was in my clients best interest first and running a very busy appointment schedule, I was able to fulfill my responsibilities to the company and my clients. Now that I am affiliated with an independent broker dealer, I don’t find my recommendations changing. I have, however, known advisors who have affiliated with companies whose local agencies place a great deal of pressure on them to only sell proprietary products. I believe they have a difficult time walking that line.

: Well, thank you for that answer. I think that makes sense. I want to ask you a couple of personal questions if I could.

Phil Lubinski: Okay.

: How about this: I somehow convey to you a magic wand, and you can wave it and immediately institute any changes at all in the business of being a financial advisor. These changes could be related to products, regulation, marketing. It could be something I’m not thinking of. What change or changes would you make?

Phil Lubinski: Wow! This is probably one of those answers that three days from now you wish you could change. I would like to see a focus at the industry level on process rather than product. I’m hearing some lip service to that effect at national meetings but I’m not really seeing it being implemented in the field. Every advisor would love to see different regulatory oversight because it’s gone to an extreme. It’s certainly not limited to our industry. We’re seeing doctors leaving their practices because they can’t practice medicine anymore. We’re seeing teachers abandoning teaching because they can’t teach anymore. At times you feel you’re practicing law more than financial planning.

Specific changes I’d make are…
1. Better training
2. Less complicated products
3. Re-define the wholesaler relationship and their compensation
4. A planning/problem solving focus

MACCHIA: Good answer. One more personal question. As someone who has helped hundreds and hundreds of people enjoy more secure retirements, when you imagine your own retirement, in its most conceivably perfect form, where will you be and what will you be doing?

Phil Lubinski: We’ve have a genetic flaw in my family. My 90 yr. old father just retired this year. The thought of not being involved in this industry in some capacity is unimaginable. This has been the most emotionally and financially rewarding career I could have ever asked for. The ideal retirement for me will be knowing my clients are in good hands, being able to continue developing the Income for Life Model™ and helping advisors establish meaningful and impactful relationships with their clients. This intertwined with time to kick back, marvel at the continued success of our children, spoil grandchildren and someday see the Rockies kick the Red Sox’s butts in a World Series would be perfect.

: Sounds pretty good- except the Red Sox part. Phil, I want to thank you for this conversation.

Phil Lubinski: Thank you. It was fun.

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