Founded in 2013 by Chris Costello, CFP, Blooom provides automated portfolio management services for their Employer-Sponsored Retirement Accounts (ESRA) that include the 401k, 403b, 401a, 457, and TSP. This market niche had been overlooked by industry rivals, allowing this well-financed startup to build relationships with a broad-based and highly-committed customer base.
Narrowly focused on employer-sponsored retirement plans
Competitive fees for larger accounts
No need to open new account
Can talk with advisor through live chat
Limited by individual plan rules
No telephone number
Clients pay transaction costs
No performance data
Applicants complete a brief questionnaire that asks about your age, expected retirement date, market knowledge, and employment psychology. Your answers generate a proposed stock and bond allocation, followed by a page to connect with the most popular retirement plans. You can choose from the list or go to a search page to find their plan. There are no questions about marital status, dependents, assets, or other personal data commonly used to build profiles at other robo-advisors.
Linking to the ESRA account generates a detailed breakdown that compares current and proposed portfolio allocations, subdivided in the following market sectors: US Large Cap, International, US Mid Cap, Emerging Market, and US Small Cap.
You essentially get a free analysis of the current employer-sponsored retirement plan, triggering a proposal to replace higher-cost mutual funds and exchange-traded funds (ETFs) with lower-cost equivalents. The strategy is underscored throughout the site in marketing presentations that estimate savings for Blooom clients over time. The analysis also proposes asset diversification with stock and bond weightings to achieve balance.
The Blooom website features an impressive variety of goal-setting tools and calculators to help clients figure out how much money should be set aside to reach retirement goals. There are general tools for other goals but the retirement focus is strong and in line with the robo-advisor’s business model. The intention of an employee-sponsored retirement account is, of course, to save for retirement. So while other platforms offer a wider integration of life goals, it is understandable why Blooom really focuses in on one.
Clients check their progress by logging into Blooom and looking at a digital flower that visually highlights the portfolio’s health or weakness. You can also dig into results through a context menu or follow up on live chat with a financial advisor if you think returns aren’t moving in the right direction. Even so, clients still need to review results directly through the plan’s account interface.
Clients have to rely on contribution plans for statements that list transactions and account balances. Blooom specifically states, “we will not provide statement or performance information for your account,” even though the digital flower directly contradicts this assertion. Clients can buy or sell securities alongside the robo-advisor, impacting allocations and periodic rebalancing while potentially raising transaction costs.
Blooom offers no deposit or recurring deposit functionality because employee contributions and employer matching handle that task. Withdrawals are handled through ESRA plans as well, with steep penalties for investors under the age of 59½. Some retirement plans may let clients borrow against account equity at 1% over Prime, which stood near 5.50% in May 2019.
Blooom algorithms manage your plan after getting permission and there are no new accounts or fund transfers to a third-party clearing firm. The recommended portfolio follows plan rules and market universe—buying and selling stocks, bonds, ETFs, mutual funds, and/or fixed income rather than tracking a generic set of investments. Clients can buy or sell at the same time but not change the system’s recommendations.
Blooom builds well-diversified portfolios and allocations in line with the client’s age and time to retirement, limited by the options available in the ESRA plan. The FAQ states they will apply the following strategies when building portfolios:
- Get the stock vs. bond ratio appropriate for the time frame to retirement
- Get exposure to every appropriate asset class within the 401k fund lineup
- Select the lowest-cost funds for each asset class
ESRA plan restrictions can greatly impact the effectiveness of this culling process through asset class limits, a small securities universe, and/or frequent trading restrictions. As a result, investments must be customized to these limitations to potentially include all sorts of mutual funds, stocks, bonds and fixed income products.
Blooom engages in rebalancing on a “periodic” basis. The SEC-mandated ADV-2 brochure states they provide the following management services:
- Review your present ESRA account allocation
- Advise on asset allocation and selection
- Select appropriate investments based on the advised asset allocation
- Implement the allocation that you have initially pre-approved if Blooom has access to your ESRA
- Monitor and track assets under Blooom management
- Adjust the allocation automatically as you approach retirement
These offerings look basic in contrast to the tax-loss harvesting, savings account sweeping, and other dynamic services offered through some platforms. However, it is important to keep in mind that Blooom is looking to serve the ESRA market and that makes some of the bells and whistles offered by other platforms irrelevant. Along with saving you fees along the way and ensuring basic diversification, Blooom’s assistance in shifting down the risk profile of the ESRA as retirement nears is a key step many miss when they self-manage their retirement portfolios. So while the portfolio management tools are basic, Blooom covers all the critical points for managing an ESRA.
The website is mobile-ready but they offer no dedicated mobile apps, forcing clients to use whatever mobile resources are available through their retirement plans.
Getting around the website is easy, with a plain-talk style that will appeal to younger investors. However, this approach is a double-edged sword because applicants wanting detailed information will need to drill through FAQs and disclosures, reading all of the fine print. The FAQ covers most issues but under-the-hood commentary on methodology is sparse, looking like a classic approach with an overriding focus on fund costs. Fees are a critical component, but it would be comforting to see a bit more assurance on how their algorithms operate within ESRA constraints to deliver superior diversification.
There’s no telephone number and all customer contact must be made through live chat or email during service hours listed between 8 a.m. and 5 p.m., Monday through Friday. This digital-only approach has caused problems at other financial operations in recent years because many clients insist on speaking with human representatives when their money is at stake. Here again, Blooom appears to be counting on a younger user base that's more comfortable with electronic interactions.
Education & Security
Blooom’s educational resources are focused primarily on retirement. The site provides goal-planning content through a blog with how-to articles, tools, and calculators. Some cover general investments, but most adhere to the more specific retirement investing themes. The website uses 256-bit SSL encryption and maintains limited personal data that includes the client’s broker credentials. There’s no two-factor authentication but Blooom insists on third-party verification whenever a change to the account is requested.
Commissions & Fees
Blooom charges $120 for an annual subscription instead of a wrap or management fee. This charge does not include brokerage commissions, transaction fees, or other related costs and expenses the ESRA or retirement account custodian may charge. This can greatly increase the total cost for Blooom. It’s even more expensive for small account holders, with a $10,000 account paying a hefty 1.2% annual fee before transaction costs while a $20,000 account pays 0.60%. The cost of the service drops below industry averages on accounts above $50,000. Overall, the subscription and other fees may generate much higher costs than all-inclusive management fees offered at other robo-advisors.
Is Blooom a Good Fit For You?
Blooom offers a great fit for younger and middle-aged investors who are frustrated by the performance of their employer-defined contribution plans. This is especially true because few robo-advisors focus on ESRA accounts due to logistical issues and third-party relationships. Blooom’s tight focus on this market has helped in the development of a niche service that can deliver significant value to the right customer.
That said, two negatives may discourage potential clients from signing up. First, it’s expensive for small accounts, with high costs undermining annual returns. Second, they don’t itemize comparative benefits between portfolio allocations and rebalancing into lower fee securities. It’s a big issue because many clients can self-direct into cheaper securities without paying a subscription fee, while Blooom’s rebalancing with restrictive plans may generate limited savings. Blooom is clearly on to a solid niche and the platform will no doubt continue to evolve. As it stands now, however, Blooom is a better fit for people with large, flexible ESRA accounts than it is for those just starting out.
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