Airing It Out

Harmonica in hand, outspoken planner John Henry Mc

While the precipitous decline of the stock market may have you feeling blue, planner John Henry McDonald is singing the blues. Literally. Tune in on a Wednesday night to the University of Texas at Austin affiliate of National Public Radio (KUT-FM) and you just might hear him strumming his guitar, wailing away on his harmonica, and crooning a few tunes. Oh, and talking about personal finance, too.

Harmonicas and hedge funds? Guitars and gift tax? Welcome to "Taking Stock," a financial call-in show McDonald initially set up when he was president of his local ICFP chapter to give chapter members an opportunity for media exposure. Although his presidential status and the ICFP are history, he "just keeps on showing up," he laughs, and keeps dragging other planners along. "The first time we did this show, the station had a record number of callers in the first hour," he says. "It was so cool. People are hungry for this kind of information." For McDonald, 52, the show is an excellent forum for public education, an inexpensive method to establish name recognition, and an easy way to build awareness about the planning profession. Not to mention the fact that he's having a ball.

On the air, the rules are basically the same as those back at Austin Asset Management, the fee-only practice that he founded 14 years ago in Austin, Texas: (1) Tell the truth; (2) Don't take yourself too seriously; and (3) Feel free to yell at the on-air guests. Several months ago, a show was sailing merrily along until the visiting planner made a statement about retirement plans that McDonald disagreed with. He could have let it go. He didn't (see Rules 1, 2, and 3). "That's not the way it works!" he burst out. The other planner blinked: "What? Yes, it is!" "No, it's not! You can't do that!" "Yeah, you can!" By the end of the dispute, both planners were shouting and pounding the table. McDonald: "Aww, man, you don't know what the hell you're talking about!" "Yes, I do--I'm a CFP!" McDonald: "What, you think I'm impressed?"

"We were on the air the whole time," McDonald recalls, laughing gleefully. (He's a CFP, too, by the way.) And rather than getting flustered, he found a way to use the argument to make a point with the audience. "I said, 'Whoa! Listeners, this is exactly what happens behind the scenes all the time. You think the experts you hear are all geniuses? They're not geniuses. The reason you are confused is because this is confusing.'" He pauses, still chuckling. "I love radio. It's a gas. You never know what's going to happen."

Austin Asset Management

John Henry McDonald, CFP

Austin Asset Management Company

5511 Parkcrest Dr., Suite 210

Austin, Texas 78731

512-453-6622

www.austinassetmanagement.com

Year practice began: 1986

Number of planners in office: 4

Number of clients: 180 financial planning and asset management clients; 40 planning-only clients

Number of clients of his own: 30

Compensation method: Fee-only

Average fee for a comprehensive

financial plan: $4,000

Fee for managing assets: Sliding scale from 1% on first $250,000 to 0.1% of anything over $5 million.

Hourly rate: $200/hour, credited toward asset management fees

Client demographics: Couples and families in the Austin area

Education: Highline Junior College, English; West Washington State College, English

Previous incarnations: Professional musician

Professional designation: CFP

Outside interests: Playing blues guitar and harmonica

Quotable quote: "When I don't know an answer to a listener's question, I play harmonica. I'll say, 'I don't know; that's an excellent question. Hey, have you heard this one?'"

This little anecdote reveals two salient points about John Henry McDonald. First, he is a born showman; although he hasn't played blues guitar and harmonica professionally for 25 years, the performer in him is very much alive and kicking. McDonald seems to thrive on it all--finding pithy ways to explain complicated subjects, bantering with the callers, scrambling to keep the phone calls flowing smoothly, working in his musical riffs, and snickering as he deflects particularly hard questions to the on-air guests.

The second thing this little yelling match reveals is that McDonald is not afraid to tell you, bluntly, what he thinks. While he jokes that the radio show is just a cover for the folk revival he wants to launch ("This is all a thin ruse, this financial planning stuff. Eventually it will just be filler around the music!"), he welcomes the opportunity to set callers and clients straight about financial planning matters. The slogan printed on his brochures and Web site is "When Only the Truth Will Do," and his version of truth is decidedly the unvarnished variety.

"There are three things we can know about money, and only three," he told listeners recently. "Some asset classes do better than others over a given period of time, diversification spreads risk, and profits are made by buying low and selling high. Everything else you hear is malarkey." When a young caller asked how much she'd have after 10 years of investing in a particular mutual fund, McDonald made his point with similar bluntness: "Well, you'll either have more, or you'll have less."

And he doesn't tiptoe around his financial planning clients, either. "I'll tell a client, 'The probability of you achieving anything greater than 10% over 10 years is not great; therefore, I will not allow you to tell me you want more than 10%,'" he says. "'If you want more than 10%, I don't need to change your portfolio; you need to change your mind. You need to spend less money. Or work longer. Or start smoking and die sooner.'" He snickers. "That would work, too, wouldn't it?" Then seriously: "'But if you think I'm going to let you try to double your money in five years, you're out of your mind! I'm not going to let you take that kind of risk.'

"And if they say they think they can do better elsewhere, I tell them, 'Well, hell, then you need to go elsewhere.'"

Wednesday Night Live

So how does a harmonica-playing planner get himself a radio show? McDonald simply asked for one. The NPR affiliate at the University of Texas at Austin already had a regular call-in program with a changing roster of hosts and discussion topics. McDonald showed up at the station and asked the producers if he and another planner could host for an evening. The producers said yes, and in 1993, "Taking Stock" was born.

Since it is public radio, McDonald can't tout his own firm or those of his guests; he can merely mention the firms when identifying himself and the other planners at the beginning of the program. He can't link his firm's Web site to the KUT site; to receive questions from listeners by e-mail, he's going to have to build a separate companion site dedicated solely to the show. Still, these limitations seem minor when you consider the price: free. And besides, pretty soon they're going to pay him. "When the show goes to a weekly schedule, they have to pay me," says McDonald cheerfully. "I'll be making $150 a show."

Asking for Trouble

John Henry McDonald doesn't mind a good rant now and then, just for exercise, and one topic sure to get him riled up is the question of client questionnaires.

"I've seen what some financial planners use. It ought to be against the law!" he cries. "They send a thing to the client that says, 'Give us your net worth,' and the client thinks it has something to do with fishing rights! 'Give me a list of your tax preference items.' What?! I am assuming the client knows what an alternative minimum tax is?

"Or, 'Here, on a scale of one to 10--one indicating no risk, 10 indicating lots of risk--tell me where on this line you lie.' What does that mean? Clients have no idea! So the client puts a little dot right in the middle, and they say they're right in the middle, and you put together a portfolio that represents right in the middle. And then you lose money, and the clients say, 'I didn't mean 'Lose money,' I meant, 'Take no risk.'

"We don't have clients fill out anything, ever. We take them through the financial plan. I ask the questions, looking for answers in a certain way. 'How's your children? Do you love them equally? Is your mom alive? Is your dad alive? How long have you been married? Is this your first marriage? Second marriage? Third marriage? Last marriage? What are you doing here? What state did you come from? Was it a community property state? Was it a separate property state?'

"We believe the planner should take control of the situation. Why would they come to us if they knew how to do all this stuff?

"Don't get me going on this," he says. "It makes me nuts."

What makes the program work is McDonald's breezy style and his willingness to cut to the chase. Listeners generally have specific questions--Am I doing this right? What does this term mean? Is my brother-in-law's tax shelter scheme legal?--and you can hear in their voices the relief that they've found someone who will give them an answer in four sentences or less and entirely in plain English.

Yet the breeziness is also the program's greatest risk. Comprehensive financial planning, by definition, demands comprehensive information, and it's impossible to collect much more than a name, age, and marital status on a radio show. What to do? McDonald and his guests try to meet the challenge by reminding callers that their answers would differ depending on a variety of factors, and by encouraging callers with particularly complex tax or legal situations to see an accountant or attorney. These aren't perfect solutions, but then again, a little bit of solid information is better than none at all. And McDonald always wraps up the program with a caveat. "At the end of the show, I always say, 'And for God's sakes, don't do what we've said to do,'" he says wryly. "'Don't make life-changing decisions based on a one-minute chat with a radio host. This is only radio.'"

(You can listen to his show on the Internet at www.kut.org on the last Wednesday of every month at 7:00 p.m. CST.)

And Back at the Firm . . .

In addition to KUT-FM, McDonald also makes himself known in the local newspaper, the Austin American Statesman. Clients who are unable to afford Austin Asset Management's fees have the option to receive a comprehensive financial plan in exchange for having their financial makeover printed in the newspaper as a case study. There are more takers than you'd think. "Every time the column appears," McDonald says, "I get three, four, five, six requests from people who are in trouble and want to be in the paper."

McDonald's nine-member firm offers a number of services, some traditional, some unique. Clients receive quarterly reviews and consolidated reports, plus eight additional communications per year. Each communiqu? requests an update to a section of the financial plan. "In January we send out a letter reviewing [clients'] goals; in February, we review their cash flow; April, their taxes; May, phone numbers and addresses," says McDonald. "We have a client services center, and that's all they do." The system helps the planners by keeping clients' plans up to date, and it also sets the tone for client relationships by ensuring that messages from the firm aren't overly focused on investment performance.

Client visits are relaxed and interactive. McDonald's clients plunk down in a big easy chair in his third-floor office, and a large, flat-screen monitor is placed in front of them. Seated at a computer that is hooked to the big screen, an intern arranges the client's data in various windows and punches in new simulations as McDonald requests them. McDonald focuses on the client and uses the screen as a visual aid.

A recurring item on the screen is a proprietary graph showing the client's current financial situation in relation to where he wants to end up. Rather than adjusting future expenses for inflation according to a standard percentage, McDonald uses what he calls a "Family Inflationary Factor." Every expenditure a new client makes, every check she writes, is tracked for six months. A year later, another snapshot of the budget is taken, though this time only for a month. The difference in monthly spending is the Family Inflationary Factor.

"We don't use 4% or 5% or whatever kind of malarkey other people use," says McDonald. "I don't care what the cost of gas is if you're riding a bicycle to work. I don't care what the cost of housing is if your house is paid for. I don't care what the price of meat is if you're a vegetarian. My little old ladies do not spend 4% more each year. They spend $1,800 a month forever. If I have an executive who is spending 8% more each year, that's an interesting number. But do I need to compute an inflationary factor of 2.84% or whatever CPI is? No! That has nothing to do with reality."

All in the Family

McDonald conducts every initial client interview, and then, depending on the clients' needs and personalities, he signs them on as his own client or passes them off to an associate. The firm has four planners, one full-time investment manager, a CFO, and three staff members who run the client services center and handle public relations.

In 1989, McDonald founded a consortium of financial planning, consulting, tax, and law firms to provide truly comprehensive services. Nice idea, but the administrative side was mind-bending. "The issue of the Chinese Wall, where CPAs can share fees with consultants but consultants can't share fees with attorneys who can't share fees with whoever . . . Finally, I just said, 'The hell with it: You guys leave, I'll stay.'" He laughs. "'I'll just hire 'em.'" Which he did. Among the four planners (all CFPs) at Austin Asset Management, one is a CPA, one has a law degree, one has a PhD in psychology, and one, McDonald, is studying for his CLU.

New planners are most likely to enter the fold through McDonald's internship program, which he jovially describes by saying, "There's no opportunity like this on earth!" And it does sound pretty good. The firm pays for the interns' CFP courses, and as their studies take them through each aspect of planning, McDonald makes sure they sit in on client meetings dealing with that subject.

The interns also have an opportunity to play many roles within the firm. "They go through every part of this firm--they work with the money manager, the client service center, they work with the receptionist, everything," he says. "Over those two and a half to three years--because it takes three years to get the CFP experiential requirement--we'll send you to school, we'll pay for your books. And at the end of three years, we'll start giving you clients, and you'll be in practice."

And besides, you might even get to be on the radio.

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