The Whole Picture

At Alpha Omega Financial Services, Bob Hudson and company turn a life story into financial security

by Sean Toussaint

Robert and Brenda Hudson started Alpha Omega Financial Services in 1987, working out of their house in Underhill with the dining room table serving as a desk. That's a far cry from their 4,200-square-foot offices in Essex Junction.

Bob Hudson, founder and president of Alpha Omega Financial Services, loves electronics, which he started tinkering with as a young boy growing up in Tucker, Ga.

"When I was 13, I lit myself up one time pretty good with an old power transformer on the back of a television," he remembers.

He continued his hobby while majoring in business management at Georgia State University. After graduating in 1975, he spent four years in the Air Force, mostly working on Doppler radar navigation equipment in an electronics shop in Germany.

From there, he landed a job with IBM in Atlanta, where he repaired computer equipment in the field. He was promoted to a manufacturing shop in Austin, Texas, helping develop performance criteria on future products. Following a transfer to IBM's Essex Junction plant, Hudson spent six more years developing software and helping engineer the largest mainframe IBM had developed at the time.

So, after spending 20 years with a company that had honored him with a coveted outstanding performance award and having what looked to be a secure position until retirement, what was Hudson thinking when he threw it all away for an unknown future in financial planning?

"I could have stayed at IBM in my tiny little box for the rest of my life and done very well and been paid very well, but I didn't feel like they were utilizing all of my talents."

Chris Bixby (left), vice president of financial services, with Diane Donohue and Robert Hudson. Continuing education is essential to keeping abreast of current tax law and other industry changes. Bixby will spend several weekends this fall in seminars.

The consummate planner, Hudson spent a year researching how to operate a financial services company. Six months before handing in his resignation in January 1987, he had his first client.

Those first few years, Hudson worked out of his house in Underhill. His wife, Brenda, whom he started dating in Tucker, was an integral part of the operation from the beginning. She was the first of many things at Alpha Omega: the first receptionist, the first administrative assistant, the first business manager, and is soon to be the first person to retire. "I did everything that needed to be done," Brenda says. "It was like raising a child. Now that the child is all grown up, I'm cutting the strings."

Listening to the Hudsons and staff sounds at times like a college philosophy class and at other times like a crash course in microeconomics.

"Our philosophy is that everything changes over time. It's a constant flux," Hudson says. "Because of that, we believe that financial planning is a long-term relationship ... Yesterday is ancient history, and today is almost gone, and the only impact we can have as an organization is out in the future."

The financial services industry encompasses retirement planning, investment and insurance services, estate planning, tax preparation and planning, and accounting. Alpha Omega representatives bring all of these topics to the table with potential clients to outline their financial histories up to the moment they walked into Alpha Omega.

"What this does is drive a stake in time and says, 'Here we are today,' " says Chris Bixby, vice president of financial services, "and then we go over our predictions on how we are going to reach our clients' goals. The only thing we can guarantee about that prediction is that it's going to be wrong, because there are way too many variables in a financial life. We don't know what your portfolio is going to do; we don't know what inflation is going to be; we don't know what your income is going to be; we don't know how you're going to spend your money; and the biggest variable, we don't know how long you're going to live."

Ron DeYoung, a retired engineer from General Electric, sat down for his consultation with Hudson almost 10 years ago. A coworker had recommended Alpha Omega, and DeYoung decided to see if the company could consolidate some money he and his wife, Ann, had spread around in various accounts.

"I consider myself a pretty organized person," DeYoung says. "I had my goals pretty well laid out before me. When I first met Bob, I have to admit, I was a little skeptical, but he proved that he could do what he said. We started out with a small amount of money just to test it out, and our portfolio has continued to grow. What I like best about Bob is that he never forces something me, but he always has a recommendation.

Alpha Omega's satellite office in St. Albans is headed by Julie Hoy, the company's longest-serving employee. The process that Alpha Omega employs is known as the Modern Portfolio Theory (click to read an explanation by publisher Jack Tenney) by Harry Markowitz. The technique is to diversify and allocate assets to reduce risk and increase the average annual compound growth rate as opposed to the average rate of return, which Hudson says can be misleading.

"It's funny, in a time when there is so much information out there, 90 to 95 percent of Americans are not financially secure," Hudson says. "That's because they're going at it the wrong way." Hudson says most people involved in financial planning use one of three approaches in selecting an investment: They try to pick the winner; they try to time the market; and they base forecasts on past performance.

"It's not about picking winners or picking what was hot yesterday," Hudson admonishes. "It's about professionally allocating and diversifying investment assets and then actively managing that diversification over a long period of time. That's the only technique that has ever worked."

Just like their clients, representatives have a long-term plan of where they want to be professionally, five, 10, 15 years down the line. As Hudson says, "If you're not moving forward, you might as well be moving backwards." To maintain that forward momentum, representatives attend classes and conferences and earn Security and Exchange Commission (SEC) designations to sell certain types of investments and manage people's money.

"Designations are a mark of achievement," Donohue says, "but it's more a reflection of the growth that's going on inside of us. We can't just be reading the same newspaper articles or watching the same television program as our clients are. We need to be 15 steps ahead of them, so we have something to offer and challenge them to grow under our guidance."

Bixby used the recent tax bill signed into law by President George W. Bush to explain the importance of continuing financial education. On the surface, Bixby says, the bill is a tax cut that starts off with at most a $300 rebate for individuals. However, the tax bill has implications in estate, insurance and investment planning.

"All of a sudden, every major area of financial planning changed with one signature," Bixby says, "and not only did it change, but it's changing for the next 10 years. And at that point, it's a sunset provision, and it all reverts back to what it was unless the law is extended."

Alpha Omega is an affiliate of H.D. Vest Financial Services, a brokerage firm in Texas. H.D. Vest is responsible for supervising affiliates and making sure they follow the laws enforced by the SEC.

Hudson decided to align his company with H.D. Vest when he opened his business because of its decision to not offer proprietary funds, in-house mutual funds that representatives are usually paid more to sell. That would be a conflict of interest as far as Hudson is concerned.

By the same token, Hudson does not align himself with one insurance company, but shops around for the best rates for his clients.

H.D. Vest was acquired by Wells Fargo & Co. in July, after years of being severely undercapitalized while trying to compete against the tide of larger brokers. Bixby says H.D. Vest decided to go with Wells Fargo because of the bank's large pool of financial resources and promise to keep the brokerage house a non-bank subsidiary.

The new relationship allows Alpha Omega to expand and create some services. For starters, Alpha Omega will tie into Wells Fargo's technological capabilities. Clients will be able to access personal Web pages with their account information and other tools to develop a basic understanding of the financial industry.

"We don't want our clients in the dark," Bixby says. "We want them to know how complex this is." Down the line, Alpha Omega sees itself offering mortgages with the added luxury of refinancing with Wells Fargo.

While Alpha Omega will continue to be independent of H.D. Vest and its new parent company, the brokerage house will remain in the daily background. "What's important to us is that H.D. Vest is there to provide support," Hudson says. "We can call them up any time and ask them very technical questions. They have expertise in taxation, retirement planning, all of the different areas we deal with. We rely on them heavily to provide us with assistance and use them as an educational resource."

Alpha Omega focuses mainly on individuals, however, it does serve some small- to medium-sized businesses. Representatives manage as little as $10,000, which entails asset allocation and complete performance information in the form of a thick binder full of mountain and pie charts. Larger portfolios contain more diversification because there is more money to spread around, but Hudson says the same analysis applies.

Some clients are charged per transaction; others are charged a commission. Almost 1,800 clients are in the Alpha Omega database, 50 percent strictly for taxes. About 300 clients have signed on for the entire financial planning process, Hudson says.

"We are in the business of building wealth, and the first way to do that is by taking a proactive approach at reducing taxes," Hudson says. "We really believe people pay way too much in taxes income taxes, gasoline taxes, property taxes, sales taxes. It's unbelievable when you start adding it up."

That philosophy led Alpha Omega to purchase a tax-preparing service last year in St. Albans, which is headed up by Alpha Omega's longest-serving employee, Julie Hoy. In its first tax season with a satellite office, Alpha Omega processed more than 1,300 tax returns.

Compare that to the first tax season when Hudson opened Alpha Omega, when he filled out 67 tax returns by hand. With 11 employees today, Hudson says he can't remember the last time he completed a tax form by hand.

Alpha Omega's income has grown by about 20 percent a year in the last six years, which by Hudson's own admission was helped somewhat by the booming economy. Financial planners will likely be the hardest hit by the slowdown. B
ixby says he read a survey last year in The Wall Street Journal that predicted 70 percent of financial advisors would be out of business within the next three years.

"But we'll still be here," Hudson chimes in. "There's no doubt in my mind about that."

Originally published in September 2001 Business People-Vermont