Struggling to manage your 401(k)? Do you wish you had a highly intelligent robot to do it for you? Your wish has been granted (well, it’s not an actual robot but you get the point). Here’s our review of blooom.
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Do you ever get the feeling that you’re all alone when it comes to your employer-sponsored retirement plan? Or even your IRA? It very well may be the single biggest financial asset account you have, and you’re thankful your employer offers the plan. But managing it, particularly the investment allocation part, is an ongoing struggle. If it is, help is just a click away. A service called blooom is available, and it works specifically with both IRA accounts and employer-sponsored retirement plans.
The company claims it’s saved clients more than $1.2 billion in collective lifetime fees. If you want to get in on the savings–and get help with managing your retirement plan–read on.
Founded in 2013, and based in Leawood, Kansas, blooom is a registered investment advisor that’s in the business of managing individual retirement accounts and employer-sponsored retirement plans. This is a fairly rare but incredibly necessary service. Millions of people participate in these retirement plans and are usually left to their own devices to make investment decisions.
Though blooom manages IRAs, it’s the services provided for employer-sponsored retirement plans that are most noteworthy. The company claims to be the only robo-advisor focused specifically on 401(k) plans. The service is not available for taxable accounts, which is increasingly the domain of robo-advisors.
Employer-sponsored retirement plans managed by blooom include:
- Thrift Savings Plan (TSP)
Blooom is a robo investing service that can manage an employer plan no matter where it’s held. Sign up for the service yourself and use it for your plan, and there is no requirement for your employer to participate. What’s more, blooom acts as a fiduciary. This means they are required by law to act in your best interests. Unlike some investment brokers, they don’t favor proprietary investments, that may be more fee-friendly to the broker. blooom works strictly with the investment options offered within your plan.
How blooom Works
When you work with blooom, the service only manages your plan. You are the owner of the plan, and still retain complete control. And given that it’s an employer-sponsored plan, there’s no need to move your account to a different platform. Blooom does not take custody of your plan.
Once you sign up for the service, blooom will adjust your portfolio allocation within 10 to 30 days. The allocation will be based on your investment time horizon, and will adjust accordingly. For example, the closer you are to your retirement age, the larger the bond allocation will be. If you’re farther away from retirement, your portfolio will be allocated primarily to stocks.
They start by looking at the investments available in your plan. These are more limited in some, and more generous in others. The emphasis will be on index funds that track the market, though they may occasionally use an actively managed fund if they consider it to be to your advantage. They’ll also eliminate funds that don’t make sense for your retirement goals.
Funds are selected by the blooom algorithm, based on a combination of fund expenses and the investment experience of the fund manager.
Blooom then monitors your account continuously for any changes in the funds available in your account.
Investment Fee Minimization
This is one of the most important services blooom provides. They actively look to help you avoid paying the fees that are inherent in the investment process.
They do this in one of three ways:
- Exposing hidden investment management fees, buried in certain investment funds. These include fees that are deducted from your fund balance each year, so you may not even know you’re paying them.
- Eliminating managed accounts. Some employer-sponsored retirement plans work with investment brokers that offer investment management for a fee. blooom will move you away from these arrangements, since they often steer you into broker-sponsored funds that may not be in your best interests.
- Avoiding target-date funds. These are sometimes referred to as a fund of funds.” They invest in a mix of funds that are based on your age and retirement date. They’re good in theory, and growing in popularity. But the downside is that they charge very high fees.
blooom for IRAs
It’s been promised for a long time, but blooom has finally rolled out its IRA management service as of the beginning of 2020. It works similar to the service provider for employer-sponsored retirement accounts.
That includes recommending transferring out of high fee funds and into low fee funds, eliminating managed accounts, and avoiding target-date funds. And as a robo-advisor, blooom will fully manage your account, including creating portfolio allocations, performing periodic rebalancing, and reinvestment of dividends.
blooom IRA works with the following account types:
- Traditional IRAs
- Roth IRAs
- SEP IRAs
- SIMPLE IRAs
- Non-deductible IRAs
- Spousal IRAs
- Self-directed IRAs
Setting Up Your IRA to be Managed by blooom
One limitation is that your account must be held by one of three custodians: Fidelity, Charles Schwab, or Vanguard. If you’d like to use the blooom service, and you have your IRA held with another custodian, you’ll need to move it to one of those three brokers.
There is no minimum IRA account balance requirement, and the fee structure for IRA account management is identical to what it is for employer-sponsored retirement plans. And just as is the case with employer plans, you’ll start out with a free analysis of your IRA which will include your initial portfolio optimization. After that, you’ll have the option to continue with the management service on an ongoing basis.
When you sign up for the IRA management service, you’ll be contacted for any needed additional information. After that, your portfolio will be reallocated in two steps:
- Selling your current investments into cash.
- Buying into the recommended investment portfolio, which can take several days to complete.
If you have individual stocks in your plan, you’ll be given the option either to sell those positions to have your entire account managed by blooom, or keep them and manage them yourself. blooom does not actively manage individual stock positions.
It’s common for 401(k) plans to hold at least some money in company stock. Blooom recognizes this but recommends company stock positions be held to not more than 20% of your total portfolio. They will not manage this portion of your plan, but they will recommend selling off stock in excess of 20% of your plan.
Dealing with Down Markets
Blooom’s position on market drops is that they are a time to increase holdings. As part of their rebalancing strategy, they will extract some money from the investments that have been doing the best, and add them to the positions that have done the worst. That could also include reducing your bond allocation and increasing your stock position that has declined in value.
Self-directed Brokerage Accounts
Blooom will only manage the portion of your plan that is not self-directed. In that way, you can have part of your retirement plan managed by blooom, while going the DIY route with the rest of your plan.
blooom Features and Benefits
Hidden fee calculator. Since blooom is all about reducing the fees you pay in your retirement plan, they offer this tool to show you how much fees are costing you over several decades. When you see how much that number can be, the monthly fee charged by blooom will seem like a drop in the bucket compared to what you’ll be saving.
Account rebalancing. Naturally, the biggest rebalancing will be the first one, where your retirement portfolio is completely rearranged. Rebalancing will be a regular occurrence. This will be especially important if your employer plan changes investment options, or even investment brokers. Your retirement portfolio will then be rebalanced accordingly, based on the new options available.
Suspicious activity alerts. Most of us don’t think of identity theft or fraudulent activity in connection with retirement plans, especially those of the employer-sponsored variety. But they actually can happen, and blooom works to prevent it. You’ll get text message alerts whenever funds are withdrawn from your retirement plan, or there’s any suspicious activity in the account.
Access to financial advisors. Blooom financial advisors are available anytime you have a question about your retirement plan.
Customer support. You can contact blooom by either live chat, or an email message form on the website. There is however no direct phone contact offered. Customer support is available Monday through Friday, 8:00 AM to 5:00 PM, except holidays, Central time. Email inquiries after regular business hours will receive a response on the next business day.
Security. Blooom uses 56-bit encryption on their website to mak=e sure your data remains private. They also use bank-level security for all personal information, as well as secure servers to protect information during online transactions. They also use third-party verification to confirm your identity anytime you request a change in your account.
How to Sign Up with blooom
To sign up for blooom, you need to begin by answering some basic questions to get the process rolling.
You will then provide your email address and create a password, and go from there.
The next step will be to log into your existing retirement plan account, and provide access to the account by blooom. The entire sign-up process can be completed in just a few minutes.
Blooom then analyzes your account and makes any necessary changes within 10 to 30 days.
You can start blooom with a free analysis of your retirement plan. The analysis can be completed in as little as five minutes. It will provide the following services:
- Uncover hidden investment fees
- See what you’re invested in
- Give recommendations for stocks and bonds to help you achieve your retirement goals
For the premium version, you pay a fee of $10 per month. That includes management and monitoring of your account, including the following services:
- All the services offered under the free analysis
- Minimization of hidden fees
- Regularly adjust your portfolio to make sure it remains aligned with your goals
- Get expert financial help from blooom advisors, including questions beyond your retirement plan
- Suspicious activity alerts, to protect your account
When you sign up for the premium version, you can cancel at any time. You can also get a 10% discount by paying the fee annually ($108 vs. $120 per year).
Blooom charges just $7.50 per month for each additional retirement account managed, so you can use the service if you have retirement plans from previous employers as well as your current one.
blooom Pros and Cons
The fee of $10 per month is extremely reasonable for an employer sponsored retirement plan, especially for a larger account balance.
There is no requirement to move your account to a different investment platform, blooom works with the plan you have.
There is no minimum account size.
Blooom is one of the very few services that manages employer sponsored retirement plans.
The service works with the investments available in your company plan.
The major disadvantage with blooom is that it works only with IRA accounts and employer sponsored retirement plans. It’s not available for taxable accounts.
The fee of $120 per year will be high on smaller account balances. For example, it will represent a 6% fee on a $2,000 account, 2.4% on a $5,000 account, and 1.2% on a $10,000 account. The fee comes in line with other robo-advisors on accounts of at least $24,000, when it drops to 0.50%.
IRA accounts must be held with either Fidelity, Charles Schwab or Vanguard only.
While blooom offers live chat and email support, there’s no phone contact.
Unfortunately, blooom is virtually unique in what they do when it comes to managing employer-sponsored retirement plans. The only service that comes close is Personal Capital. They’ll analyze your 401(k) plan, then make suggestions to better allocate the assets in the plan, and even select lower-cost alternatives. But unlike blooom, Personal Capital doesn’t actively manage your plan.
But Personal Capital does have a few advantages. First, you can use the free version to review and make allocation recommendations. Then you can use some of the tools they offer, like the 401(k) Fee Analyzer which shows what you’re paying for the funds in your plan, and suggests alternatives. They also have a full suite of retirement planning tools to help you better manage your plan.
But once again, unlike blooom, Personal Capital doesn’t offer direct 401(k) plan management. That’s what makes blooom so attractive.
There are many more options if you want IRA management. For example, Betterment is a robo-advisor that can manage both taxable accounts and IRAs. They charge a fee of 0.25% of your account balance, which will be lower than blooom on smaller account balances.
Another robo-advisor option, but one with a twist, is M1 Finance. They’ll manage your account just like other robo-advisors, but they’ll allow you to create your own portfolio (referred to as “pies”), and choose the specific investments in it. That will include both exchange-traded funds and individual stocks. And not only can you create as many portfolios as you like, but M1 Finance charges no fee to manage the account for you.
Related: Best Robo Advisors – Find out which one matches your investment needs.
Once blooom decides on my investment allocation, can I make changes?
You can log into your account and change your risk profile, which will adjust your asset allocation accordingly. You can do this simply by clicking on the button that says “Risk Tolerance” under the “My Profile” dropdown. Changes in your investment allocation will be made upon the next portfolio rebalancing. That said, since you are the owner of your employer sponsored retirement plan, you have full control of the plan. If you ever want to make a change in the plan, you could simply do so in the normal way that you would. That usually involves contacting the plan custodian, and providing investment instructions.
My employer sponsored retirement plan is held with a major diversified investment brokerage that offers unlimited investments and superior customer support. Can I get the same investment advice from them that I’d get from blooom, but without having to pay the $10 per month fee?
There's a huge difference between customer support and financial advice. Large brokerage firms often do have excellent customer support, but their advice is limited to technical matters. For example, while they may be able to give you information about a specific security, they can't make recommendations as to which investments you buy or sell. Nor can they create and manage a portfolio allocation for you in any way. The role of customer support with large brokerage firms is strictly to facilitate the trading process, and not to provide specific financial advice.
Is blooom an actual robo-advisor, or just an investment advisory that makes investment recommendations that I’ll actually have to carry out?
It’s a robo-advisor. Once you sign up for the service, blooom will handle all the investment management issues concerning your retirement plan. Your job will be only to continue funding your plan, while blooom handles all the management details.
I have a 401(k) balance of $5,000, making the $120 annual fee 2.4%. Is that too high to justify using blooom?
From a strictly financial standpoint, a fee equal of 2.4% is too high. But you have to weigh that against professional management of your plan. If you have little or no investment management experience, the fee will be worth paying. This is especially true if you’re making regular contributions to the plan and increasing the balance quickly. After all, the whole point of a retirement plan is to grow it. The best way to do that is through a combination of regular contributions and steady earnings on your investments. You’ll handle the contributions, while blooom will take care of the earnings part. It may be worth absorbing the relatively higher management fee early on to help you get to that point.
Should You Sign Up with blooom?
A lot of employees are very good at the job they do. But they may have very little understanding of how to manage their employer-sponsored retirement plan or even their personal IRA account. After all, you can always use a robo-advisor to manage taxable accounts or IRAs. But there’s no other similar management capability available for what is–or will eventually become–the largest single financial asset you’re likely to have.
This is the role that’s filled by blooom, and they do it at a very reasonable fee structure. While it’s true the fee is high on smaller accounts, at least on a percentage basis, it may be the best way to turn a small account into a large one. And once your account grows to at least $24,000, blooom’s fee structure becomes very competitive with other robo-advisors, at 0.50% or less.
In fact, it becomes very cost-effective on large retirement plans. For example, if you have $100,000 in your retirement plan, the $120 annual fee will represent just 0.12%, which is well below the fee charged by the vast majority of robo-advisors. Even though there’s a large selection of robo-advisors to manage your IRA account, most have fee structures much higher than blooom on larger account balances.
If you’re concerned with a lackluster performance in your employer-sponsored retirement plan or your IRA, you feel that you’re paying too much in fees, or you lack sufficient knowledge to manage the plan on your own, blooom is an excellent service to remedy all those complications.
If you’d like more information, or if you’d like to sign up for the service, visit the blooom website.