|Clients:||Anybody with a 401k, 403b, TSP|
|Value proposition:||Affordable retirement savings management|
|The executive team:||Chris Costello, Co-founder, Chairman
Kevin Conard, Co-founder
Randy AufDerHeide, Co-founder
Matt Burgener, Chief Executive Officer
Blooom provides a comprehensive solution to managing retirement savings for the average joe. It’s a niche platform that caters to people who may not know the best way to handle their employer sponsored retirement account, and offers this service at an almost unbelievably affordable price. Blooom utilizes a set of growth-building tools to maximize and optimize anybody’s 401k.
I interviewed Chris Costello, chairman and cofounder of blooom, to better understand why retirement portfolio management needs an update. Chris spoke passionately and at length about his outlook and vision for FinTech and for blooom.
Chris’s background in the finance industry began in 1995, when he worked for some of the biggest Wall Street-based wirehouse and brokerage firms. Upon becoming a financial advisor in the late ’90s, Chris linked up with his current business partner, Kevin Conard. They would go on to form a team that helped people nearing retirement get everything set in terms of estate planning, taxes, and everything else in between. In 2004, the duo decided to create their own registered investment advisory firm, Retirement Planning Group, which still exists today. It was in 2013 that the idea for blooom was first conceived by Chris and Kevin. Right away, the duo was turned into a trio with the addition of tech guru, Randy AufDerHeide, and blooom was born.
What drove the creation of blooom
The first major problem that they looked to solve by starting blooom was that the people that needed the most financial help—common people—were, for the most part, ignored by the financial services industry. Chris noticed that wealthy people have a line of firms competing for their business and at their beck and call, while average Americans are denied access to that kind of professional help, never reaping the benefits of proper retirement savings management and advice.
“To make it more personal, my own mom and dad technically did not qualify to be a client of my firm based on their low-level of assets. Obviously, they were clients my advisory firm, but had I not been in the business, my own mom and dad would have had no financial advisors willing to help them because they just didn’t have enough assets to attract the attention of someone that would help.”
The second major problem Chris saw was a lack of knowledge concerning what a 401k is, and dubious selection of investments in retirement accounts. Even the most educated people in high-ranking careers may not have the time or desire to look into their retirement. An attitude like this may set the stage for the perfect storm of disappointment later in life.
“These are people that may not inherit a bunch of money from wealthy parents. They’re probably not going to win the lottery. A lot of them [aren’t] business owners, so they don’t have a business that they’re going to sell for millions of dollars. The 401k, this retirement account, will likely be the biggest thing that they have to allow them to retire at some point, and I just saw time and time and time again how average Americans were completely messing this thing up.”
These two points were the driving factors for the brilliant idea that Chris, Kevin, and Randy came up with. Chris explained that there is a framed quote on the wall of the blooom office taken from an email Kevin sent late one night in January, 2013, which states, “Wall Street has made a habit of running in the opposite direction of people with small accounts. Maybe we should build something and run towards them.”
What makes blooom different
As mentioned above, the creation of blooom was initiated because a niche in the market wasn’t being filled. Chris stressed that blooom was built for the individual client, not financial advisors or companies. In fact, blooom isn’t concerned with what advisors want; it is focused on building the best service and offering the best value for the individual client, blooom’s target market.
“Often times the average American, the ones that don’t have millions of dollars to invest, the only account they have today and maybe the only account they will ever have is their workplace retirement account.”
Blooom was a pioneer in developing a true robo solution that could manage portfolios with special algorithms for the entire spectrum of employer-sponsored retirement accounts. This goes beyond just the 401k, as blooom also covers 403b (nonprofits) and TSP (Thrift Savings Plan for government workers) accounts wherever they are held. Currently, no other robo-advisor has technology that can match blooom’s agnostic flexibility.
“There are over 100 different 401k custodians or record keepers, and blooom supports nearly all of those. We say all the time, it doesn’t matter where you work, It doesn’t matter where your 401k is held, and it certainly does not matter how big of an account you have. If you have an employer-sponsored retirement account, you can come to blooom and get help in a matter of minutes.”
How blooom’s tech manages investments
Different companies, and even departments within the same company, manage retirement portfolios in dramatically different ways. The custodian a company uses is merely the proxy for making investments, the guiding hand coming from the respective company’s fund lineup. Chris explained that there is another discrepancy at play here as well, which is that employees from one company can pay as much as 10 times what an employee at a different company is paying for 401k management.
For portfolio management, blooom’s algorithm is set up to automatically select and purchase the lowest-cost fund options within each asset class. The platform then maps out each fund option and builds a glide path for clients within 30 years of retirement. Allocation adjustments are all done by the algorithms and the platform, depending on obvious factors such as age. Chris said that blooom does not use typical risk questionnaires, but instead includes an intuitive slider tool that gives clients some input into the risk tolerance of the portfolio.
“Blooom uses the fund option with the lowest expense ratio. And so what ends up happening is we are generally able to save our clients a significant amount of money over their working careers by moving them out of potentially higher actively managed funds into lower-cost funds. And if those are index funds, then those are generally the ones that we end up using.”
Blooom’s team structure and customer approach
Blooom has around 20 employees, of whom roughly half are in engineering and product development, most of the others in customer service.
“Every single one of blooom’s over 22,000 clients has access to a blooom human financial advisor. We staff the company with financial advisors, and clients can ask a human being for help with anything related to money. We tell our clients, as you’re living your life, if you ever have any questions related to money, feel free to message blooom. A blooom advisor will respond to you, and we don’t charge for that. That’s included in the flat $10 per month fee.”
By definition, blooom is a hybrid solution, which uses algorithms and technology to manage portfolios with an added human element. Although blooom’s support and advisor team is not available for face-to-face meetings or phone calls, messages from any user, no matter their assets, are taken seriously. Chris mentioned that questions can range from paying off student loan debt, refinancing a mortgage, etc., and all are answered by an actual person in a timely manner.
Proper management is the key to a bright future
Blooom’s product-management approach is purely client driven. Chris explained that the company is focused on existing clients, including their challenges and needs. Reasons people give for not signing up for blooom are taken and analyzed to look for potential enhancements, and new products and services. According to Chris, this flexibility and client-driven approach may lead blooom to some day handle IRAs in addition to 401ks, because that is one reason blooom is losing customers – those that leave their employer and choose to rollover to an IRA.
“At some point, if blooom was managing IRAs that would be an easy way to close that loop by allowing people to keep their money managed by blooom, taking into account that blooom doesn’t actually hold the money in the same [way] that Betterment or WealthFront does.”
Chris believes that his and Kevin’s knowledge of the financial space gives them a distinct advantage over other robo-advisors. Their 20+ years of experience have opened their eyes to the trials and tribulations people go through in the seemingly complicated retirement-planning field.
Chris cited awareness as the biggest challenge—specifically, the awareness of the American population with a 401k. The majority of people with a 401k are struggling to find a solution that works. Some simply dial a 1-800 number, speak to a financial advisor, and are turned away because of the small amount of money in their retirement plans. Chris and the team at blooom are poised to fix this awareness problem by getting the word out to people that the solution exists.
“I think what we’re working on right now is largely creating awareness for people with 401ks and [who] aren’t multimillionaires, that there now exists a solution. And for the same price that you’re paying for your Netflix subscription, you can also get help with your very, very important retirement savings account.”
To overcome this issue, Chris pointed out the solution—find the right blend of marketing, PR, and customer delight. The more people, media, and third parties buzzing about blooom, the greater the trust in the simple $10/month platform.
“A big source of our clients comes from referrals from existing clients. And the more that we can continue to delight and impress and take the burden off of our clients’ shoulders, then we know the more clients are going to refer us to their friends and family.”
WealthTech Club takeaways
Blooom is spelled with three “o”s for a reason—they aren’t your standard retirement solution. They stand out in the crowd of robo-advisors because they value their 22,000+ clients from all over the United States. Today, blooom manages over $3 billion in assets under management, making them the fourth largest robo-advisor behind Betterment, WealthFront, and Personal Capital. Blooom’s laser focus on the niche of digital advice for people with 401k accounts is propelling them to the top, and I can’t wait to see them reach their goal.