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How a formerly homeless Vietnam veteran became a big-time RIA

The financial planner and blues guitarist took a 'miracles' course in Waco, Texas and is allergic to 'salesy' investments

Wednesday, August 24, 2011 – 4:29 AM by Steve Garmhausen
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John Henry McDonald: [The man who was my succession plan] wanted to run a lifestyle practice, and I wanted to build a larger company. That was my toughest day, the day I fired him.

John Henry McDonald is one of those vivid personalities that Austin, Texas seems to produce in abundance. His rambling yet straight-shooting conversational style has almost as many twists and turns as his life, the highlights of which include beating substance addiction and overcoming a limited education to build a pioneering fee-only firm, Austin Asset Management Co. Along the way he’s been a musician, carpenter and a television personality. And now that McDonald is easing into retirement, he’s really getting going.

Name: John Henry McDonald, founder and chairman of Austin Asset Management Co., Austin, Texas

Assets under management: $425 million

Years in the business: 24

Employees: 16

Steve Garmhausen: You started Austin Asset Management Co. in 1987 with less than $1,000 and the intention of charging only fees. What had you done before that point?

John Henry McDonald: I was a carpenter—Local 1266. I graduated trade school – no college degree, barely a GED. I was a drill sergeant in the U.S. Army and spent time in Vietnam. I was also a folk and blues guitarist. I’d had a great amount of difficulty in my early life. I was homeless for a couple of years after Vietnam.

SG: You managed to pull yourself together and by the early 1980s you were on the management track at IDS. But that wasn’t your ultimate path. Why?

JHM: By 1984 it became apparent to me that management was not my calling. And when they called me a financial planner, I said, 'No, I’m a damn good salesman.’ I got tired of selling stuff to people in the name of financial planning.

In 1984, I sat down and took a very serious look at myself and started dreaming. I signed up for a course in miracles taught by Paul Meyer, in Waco, Texas. It became apparent to me that I wanted to build the premiere financial planning firm in Austin, Texas. I was going to build a financial planning firm with valuable stock and live off the dividends. I’d bring young people into the firm and train them as fiduciaries. By 1986, I’d gotten my CFP and all the licensing I needed, and left [IDS parent] AmEx.

SG: Back then, why did you even think that fee-only was possible?

JHM: I didn’t know it was. A guy named Jack Blankenship, back at an AIFP conference in 1984 [the industry group later became part of the FPA], said he never started making real money until he quit accepting commissions. A light came on and I said, “That’s a true statement.”

I started a fee-based firm in 1986. I developed an understanding that I was a fee-mostly guy; I wasn’t fee-only. Half my income would come from financial planning fees, and I was always focused on building that part of my practice.

SG: You were also forward-thinking in terms of grooming successors.

JHM: I had a vision of what it was that I could build. I decided I’d bring younger people into firm, and make the firm worth money—I’d bring in more plans than 10 financial planners could. Young people got attracted to my vision because of my site, which says “Only the truth will do.” Even early on, when I was selling an annuity, I’d say, 'I’m selling you an annuity and there’s a 4% commission.’ It got so I couldn’t say that—it was too uncomfortable. I dropped my license so I didn’t have to contend with that conflict of interest.

I developed an internship program. I said, “Follow me around and make it so it can be repeated.” We developed a kind of teaching hospital model.

SG: For many years, you were “The Finance Guy” on News 8 Austin, appearing every Monday evening. What were the pros and cons of that?

JHM: I continue to be the voice of money! People still hear my voice and they stop me. The pros are that, generally, it brought [attention to] Austin Asset Management. The cons were that every once in a while I’d get in a big fistfight with one of those salespeople selling annuities or equity-index annuities to old people. I have real strong feelings about the whole variable side in the industry. It’s rife with problems. Every day I’d get on the air and say, “This stuff sucks.” I’ve gotten in some fistfights with the insurance industry; it’s no damn fun.

SG: Figurative fights, correct?

JGM: Figurative.

SG: You’re 63, and you started your transition out of leading the firm back in 2005.

JGM: In 1987, I’d brought in Eric Hehman [now age 36 and the firm’s CEO]. He was very, very good at running a business and it was apparent he could step into that role. I was CEO in 2005 and he was chief financial officer and chief operating officer. We had a structure in place that could go forward. We brought in a human resources executive who was here from 2000 until 2011 and she helped us build the company, the infrastructure and the transition.

The transition went from 2005 to 2008. I was making $365,000 a year as CEO … I told [Hehman] I was going to reduce my salary. I started cutting back on that big salary to give the company breathing room as I stepped away. A lot of guys in my peer group will not let go of the reins, so the young planners underneath them walk away and start own firms. Then the older guys complain: “You can’t trust these guys!” Well, you never gave them the chance to be trusted! This year we became equal shareholders in voting shares.

SG: How did that feel for you?

JGM: Cool! I’d been working on it since 2005.

SG: You’re keeping very active as you transition into retirement.

JGM: I had to be very intentional with what I’d do. I signed up for guitar lessons. I got a coach for swimming, running and bicycling. I joined the opera, the symphony, the Austin Classical Guitar Society. [McDonald also volunteers his talents for the Texas Life and Health Guaranty Association.] I got real busy; too damn busy.

You have to go about building a retirement as you went about building a financial planning firm.

SG: What’s been your worst day in the business?

JGM: There was a man who had been with me for 12 years in the fee-only practice. He was my succession plan. I had sold him shares of stock; he was a 10% shareholder, and I’d financed $18,000 of it. The shares were worth $155,000. I had to fire him. It didn’t work out: He wanted to run a lifestyle practice, and I wanted to build a larger company. That was my toughest day, the day I fired him.

SG: And your best?

JGM: I was thinking yesterday was kind of cool. The day was just kind of perfect. I mentor people in the recovery field; I had a bout with drug addiction and alcohol in my 20’s and I kicked it. I now give that back, to prison populations, to halfway houses. I was with a young man yesterday who I had counseled. It was a touching time. Then I went to lunch with the executive director of the Austin classical guitar society—I’m the vice president—we met with a man who is one of the founding members of Accenture and a shareholder. He retired nine years ago, and he’s very wealthy; we’ve become social peers and friends in the last year or so.

I went from a kid struggling to get on his feet to a lunch where I was inviting a man to serve on this board. In the meantime, he asked me some questions about my business. This is a man anybody would want as a client, and it looks to me over the next year or so that he’ll end up knowing about our firm.

I’m acting as a rainmaker for AAMC, which was my intent, and also as a vice president and cheerleader for a fine, fine organization.

Yesterday afternoon I went to the gym and worked out with my coach—had a strong workout, one that I’m proud of. I came home an hour later; the masseuse was there and I had a massage. Come on man, there it is! I’m being fulfilled spiritually. Emotionally I’ve been feeling fine. I’m improving the footprint of the firm. I’m helping out the musical community. I’m probably in the top 1% as far as physical fitness goes … and man, what a massage!

Greg Brown

Greg Brown

August 24, 2011 — 4:13 PM

What a great story. JMH is proof that with a strong belief system combined with incredible focus anything can be accomplished. Very inspiring!

James R. Veal

James R. Veal

August 24, 2011 — 6:06 PM

I agree with Greg, what a great story! JGM is living-proof that desire, determination, and hard work can help you reach your goals and greatness. As a financial advisor, he is someone we can all look up to and someone I would love to pick his mind. I wish you the best!

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