Blooom Review: A Robo-Advisor For Your 401(k)

Blooom’s robo-advisor service manages your 401(k) plan on your behalf.  It is relatively easy to use, working with any retirement accounts you hold that provide online access.  Overall, they are low-cost, charging just $10 per month in management fees. However, Blooom will not take into account your individual tolerance for risk.

They are a fully registered and reputable Investment Advisor business that specializes in both 403(b) and 401(k) plans. Blooom analyzed more than 25,000 401(k) plans, stating that after careful and intricate analysis, over 80% of these plans were not being managed correctly.  They won’t get involved where IRAs or taxable investments accounts are concerned.

Their standpoint is clear on what they offer, and they stand by their statement that through professional management, they can grow your 401(k) by twice as much compared with a self-managed approach. I think that’s a pretty bold statement, but one they can stand by firmly.

The business first started its operations in 2013, and they have offices in Leawood, Kansas and Kansas City, Missouri.  The 401(k) market is not overly crowded, and one of the significant benefits of what they offer is their ability to manage almost any 401(k) plan, regardless of with who or where it is held.  Above all else, because Blooom is a fiduciary, they are obliged by law to always act in your best interests.

The challenge that their services resolve for clients is that the majority of employer-sponsored plans will be quite random in the range of investment options which can be a little bit challenging to understand. Investors are left confused and uninformed of what is happening with their funds.  Moreover, the likes of Betterment and Wealthfront will not manage plans that are provided by employers – enter Blooom.

With the majority of retirement assets being held in 401(k) plans, Blooom’s specialist approach to this sector of investment management has given them more than $500 million in assets in just four years.  Their attractive flat-rate fee of just $10 per month means they are also extremely affordable.

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Earn A $10 Amazon Gift Card Per Referral

Once you’re a member of Blooom, you can start making referrals to earn a $10 Amazon gift card per referral. Your referrals don’t even need to become clients, they just need to use Blooom’s service to analyze the health of their 401k. If your referrals signup, they’ll get the first 30 days of Blooom service at no charge.

You’ll be able to refer via Email, Facebook, Twitter, LinkedIn, or with your own personal referral link.

How Does Bloom Work?

Using a combination of human advisors and automation, they deliver on their promise of maximizing a client’s plan.  Every 90 days they will check for opportunities to re-balance.  Customers of Blooom can access financial advisors at the company through a live chat function or contact them via email – you cannot contact them by phone.

Once you have signed up to the service, you retain absolute control of your account, but you give Bloom Legal power of attorney to act on your behalf. They will not be able to remove any funds from your retirement account, but they will be able to invest it on your behalf.  You do not need to transfer your account or open up new ones.  As long as your account has online access, they can manage it on your behalf.

Signing up is easy and straightforward.  After just 30 days, they will adjust your 401(k) as required for you.

So, how do they do this?

They will look at your expected retirement age and your current age. In the earlier stages of your retirement plan, they will weigh more heavily in favor of stocks. Then, as this plan matures and you come closer to your retirement, they will orientate this more towards bonds. They follow four key stages in order to analyze your 401(k) plan effectively:

• Step 1 – Elimination of funds and the realigning of options within your 401(k) plan.
• Step 2 – Preference is shown for the utilization of index funds, with occasional actively managed funds in order to get the desired investment exposure where required.
• Step 3 – Identification of suitable funds to get you nearer to your target allocation.  Their algorithm will choose the optimum investments.
• Step 4 – Results are checked by a human advisor at Blooom and are then cross-referenced with any allocations that have been recommended for your 401(k) plan.

The first three stages in this process are all fully-automated by Blooom, with the final one being manual and fully overseen by a fully licensed Blooom specialist.  All of the above stages can take place over a 30 day period. Blooom will keep you fully informed about any alterations that occur, even if these changes have been made by you.

How does Investment Selection Work?

As outlined above, Blooom tends to favor index funds with actively managed funds added where needed to give exposure.  A target allocation is created which is made up of the funds within your 401(k) plan that meets your desired allocation requirements.  The foremost proprietary algorithm is what determines this, and this is the robo-advisor element from Blooom working at its finest.

However, something you don’t often see with other robo-advisor services is the ability to make alterations to your mix of investments.  This means that even after your application has been put in place, you still retain control to make alterations as required.  Blooom makes this super-easy to do.  There is a button marked with ‘adjust allocation’ which you need to select in order to make any changes. It’s that simple. Any re-balancing that occurs in the future will be done in line with those changes.  Moreover, you can easily change your expected date of retirement too by selecting a button titled ‘adjust retirement’.

As mentioned earlier, Blooom with look to re-balance every 90 days and any changes they make are automated. This ensures that your account will be altered in line with any changes to market values.  Routine re-balancing has proven to add 0.5% to your return annually with Blooom.  I think that’s a very compelling reason to consider using Bloom’s robo-advisor service for your 401(k) plan.

Who Is Bloom Suitable For?

• Ideal for investors who prefer a hands-off approach
• Perfect for those who have employee-sponsored retirement plans
• Those you prefer a greater than average tolerance to risk
• Those who want a specialist and comprehensive approach to employee retirement plans

Pros and Cons of Using Bloom

PROS

• Flexibility and Freedom. You can cancel the service at any time.  Moreover, as you retain full control over your investments, and as your 401(k) plan stays exactly where it is, it makes this process easy and straightforward.
• Free-Analysis Tool. This clever little tool gives anyone the opportunity to take the service for a test drive first before committing to anything. It is easy to create a Blooom account for free and link your 401(k) plan up.  They use a symbol of a flower to depict the health of your plan and suggest ways in which you can improve it overall.  If you want to do it on your own, you can take their suggestions and implement them independently if you so wish.  However, if you can afford the $10 per month fee they are asking, why wouldn’t you let Blooom take over management of your 401(k) and while they are at it, take care of the re-balancing too?
• Professional Investment Management of your 401(K). For the majority of individuals, their 401(k) plan is probably going to be their largest asset. Generally speaking, there isn’t always a lot of choice when it comes to who manages that asset on your behalf.  Blooom offers professional investment management specifically for your 401(k) plan.  Although there are services provided by Personal Capital and Vanguard Personal Advisor Services which offer guidance, they do not provide direct management.  The other important point to note here too is that you don’t need to inform your employer or get them involved in any way.
• Predictable and Affordable Management Costs. Blooom is an exceptionally affordable option for your 401(k) plan.  They charge a flat rate of just $10 per month, which if we look at a base amount of $100,000 being managed for just $120 annually, that works out to be just 0.12%.  This fee is way below anything that you would see traditional investment businesses charging for their professional services.  All fees are taken from a credit or debit card and are not taken from your 401(k) funds.
• No Minimum Requirements. With Blooom, there aren’t any minimum requirements for their services.  This allows anyone who has a 401(k) plan, at any stage, to enlist Blooom’s expertise to manage their employee retirement plan for them.
• Accepts all Plan Providers with Online Access. Unlike other Investment Services, Blooom provides an all-encompassing approach to 401(k) management.  As long as you can manage your account online, they are able to manage this plan on your behalf.
• Financial Advisor Support. Although normally, I wouldn’t view email and chat only support as a good thing, Blooom has actual financial advisors on the end of the line, and not just customer support personnel.   The other added bonus that they offer through these advisors is that they will offer support to their customers that generally falls outside of the 401(k) management realms.  So, if you need advice with regards to budgeting, debt repayments or anything else along those lines, for just $10 per month, you can also utilize these advisors help to provide guidance on a whole range of other financial areas.
• Auditing of Investment Expenses. Generally speaking, 401(k) plans will provide limited options that often include above-average fees.  Blooom will carefully classify each of the investments into 1 of 14 different categories.  Their algorithm will then sort the funds in each of those categories with the lowest internal expense ratio.  Although there might be cases where there is only a single fund in each category – meaning expenses cannot be reduced. In many cases, this approach can enable an investor to reduce their overall expenses while keeping an appropriate allocation of their assets over a diverse portfolio.

CONS

• Only Available with 401(k)s, 403(b)s, 457s, 401(a)s. Blooom’s service will cover a large proportion of plans with online access. However, it is important to highlight that at the time of this writing, their services are only available for employer-sponsored retirement accounts, such as 401k, 403b, 401a and 457 accounts. Currently, they do not work with taxable investment accounts or IRAs.
• Basic Risk Profiling. Your overall asset allocation is only determined by using two metrics; these are your stock to bond ratio and your age.  This approach could be deemed as too simple because no consideration is given to your overall tolerance for risk.
• Investment Assessment is Limited. Obviously, the overriding goal of any retirement plan is retirement.  The questions that Blooom asks with regards to your investment goals are therefore limited.  By only using your ideal retirement age and your date of birth, it reduces the overall investment assessment.

Bottom Line

Blooom provides a superb, hands-off solution for those who need help to manage their employee-sponsored retirement plan.  It makes it easy to sign-up and test the waters with a free, no obligation analysis tool.  They also provide clear and upfront pricing that is competitive with no surprises in terms of hidden fees or charges.

Overall, their approach to managing retirement plans is spot-on.  The algorithm they use places a particular emphasis of low-cost investments and diversification; both of these principles have been firmly supported by countless years of research.

With no minimum amount required to open an account, along with the added assurance that not only can you make your own adjustments, but you can cancel the service at any time without any penalties, I feel that Blooom has an excellent offering in a not so-crowded marketplace.

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