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According to Statista, robo-advisors are a growing trend in the wealth management space, accounting for over $980 billion in asset management as of 2019 – up from $240 billion in 2017. The same report shows that robo-users have increased by 250% in the same time frame. Today, many consumers can simply hop on the computer or mobile device and sign up for automated financial advice in less than 10 minutes.
One company at the forefront of the robo-advisor and financial planning industry is blooom. As one of the first robo-advisors on the scene, blooom specializes in automated professional financial advice regarding retirement accounts such as 401k and 403bs.
We were ecstatic to find out we could interview one of the minds behind blooom. Chairman and Co-Founder Chris Costello, CFP alotted some time to answer questions about blooom, its startup, and it path forward. Read on to learn more about blooom became a leading robo-advisor today.
In this Q&A:
Q: Where did you get the initial inspiration to start blooom?
A: Before blooom, I had been working in the personal wealth management industry with my business partner Kevin Conard (blooom co-founder). We were frustrated by the fact that many of our own friends and family didn’t have access to the type of quality financial advice that was afforded to the millionaires.
Kevin and I had always bounced business ideas around. One night he texted me and said, “Wall Street, has made a habit of running in the opposite direction of investors with small accounts… maybe we should build something and run towards them.” That sparked the idea for blooom. Shortly thereafter we looped in Randy AufDerHeide (blooom co-founder) who had the technical background to get this started.
Q: What were some key challenges to growing blooom? How did the financial planning and advising industry react?
A: Key challenges include generating interest in 401ks and communicating value beyond short-term performance. We live in a world of instant gratification, and sometimes people assume we are here to “time the market” for them. That is not the case.
I don’t think the financial industry has yet reacted to blooom. 401ks are such a small portion of the industry’s value prop that we’ve been able to fly under the radar. Off-hand conversations with advisors reveal that they see it as a potential asset to their business—a tool they could use to keep clients’ 401ks on track while they focus on managing other retirement assets.
The truth is, for many Americans – their workplace 401k or 403b is and will be their largest financial assets and single most important factor in getting them to a position where they have the ability to stop working. It is critical that this large segment of our population get this critical retirement savings account invested appropriately.
Q: How critical was the cooperation and communication between Randy, as the IT guy, and Kevin & yourself, the ones with experience in financial planning and advising during the startup?
A: We all brought unique skill sets to the table and respected one another’s expertise. It helps when you all have a common goal in mind. We had to see beyond what was available in the market and open our minds to what was possible. Trust, vision, continual communication and collaboration were a must to make this idea come to life.
I still remember one of the single most important pieces of advice that Randy gave to Kevin and I. He said do not let what you THINK is impossible to build inhibit your imagination. Assume that there is no limit to what can be built (coded into software) and let’s start there. That was insanely liberating to be able to imagine like that.
Q: Was there any difficulty in convincing individual consumers to sign on to the idea of automated financial planning and advice?
A: We face many hurdles at blooom. Some of the biggest include apathy and distrust of the financial industry. However, we are pretty lucky in that we are really the first people doing what we’re doing. I think the early tech adopters and people interested in managing their finances ‘get it’—this is a valuable tool that takes the worry out of managing your 401k.
On the other hand, because we are the first mover – the first to build a “robo solution” for the 401k market, we face the challenge of basic awareness. Many Americans are not aware that they can go online and in about 5 minutes, get professional financial help with their 401k.
Q: Did the financial crisis of the late 2000s have any impact during the initial startup in 2013?
A: The financial crisis created a lot of mistrust for Wall Street and exposed the unfortunate reality of those left out or taken advantage of by our financial system. These are two of the main reasons blooom was created in the first place!
Looking back, the crisis also gives numerous case studies on the importance of having a professional at your side. It just so happens that before blooom (or other robos), those harmed the most by the crisis couldn’t have afforded a financial advisor in the first place. Many of those that were most harmed by the financial crisis were those that were going it alone and ended up panicking out of their investment portfolio.
Sadly, that panic put many Americans devastatingly far behind when it came to retirement savings. Most of the wealth investors who had access to professional help were guided and encouraged to stay the course which obviously turned out to be the very best thing to do.
How blooom Helps You Invest In Retirement
Q: How do you make it easier for companies to offer their employees 401k options?
A: We make it easier by taking away the frustration and confusion around the decision-making process as far as what to invest in and how much. We offer the employee a truly independent and unbiased “do-it-for-me” solution to managing their 401k account.
Q: What advantages do you offer individual consumers with a 401k compared to others who rely on traditional financial advice?
A: Simplicity and price. Interacting with blooom is a far less cumbersome experience than spending hundreds of dollars an hour for an awkward lunch meeting with advisor. Not to mention, many advisors won’t touch your 401k or won’t give you the time of day unless you have several hundred thousand dollars… if not millions.
Q: What are the key challenges and solutions to sustaining a robo-advisor company through various market turndowns?
A: I’ll be honest. Market performance has a huge impact on our business. That’s why we dedicate a lot of time to educating our consumer on the factors that affect their savings. By empowering people to think long-term, we can move our mission forward.
Providing a quality experience today helps combat a bit of that instant gratification culture we live in. We spent a great deal of time trying to calm our investors at the tail end of 2018 when the media was screaming panic at every turn. Now look at where we are today, another all-time high in April 2019.
Moving Forward: blooom & the Industry
Q: Do you envision blooom expanding away from retirement planning into different investment vehicles?
A: You never know where the winds will take us. For now, we are hyper-focused on helping people manage their retirement savings. There are almost 80 million Americans tasked with managing their 401k or 403b – that gives us a huge opportunity to continue to work in that space.
Q: Where do you see the financial planning and advising industry in 10 years? Can you picture an industry dominated by fully automated retirement/investment robo-advisors?
A: We see a growing trend of integrating technology into the more traditional planning model over the next 10+ years. Since the world of investing is largely driven by human emotion, we don’t think it’s realistic to assume automation and robo-advice platforms can ever fully replace humans.
Robo-advisors and other automated investing platforms have never truly been tested in a long market downturn, and those are the times when human interaction will be most important to maintaining the client relationship and preventing clients from allowing their own emotions get in the way of their goals.
At blooom, this is why we shy away from truly throwing ourselves into the “robo” category, as we actually give all of our clients access to a real human advisor.
Named a Top 10 Most Innovative Company in Personal Finance for 2015, blooom got its start in 2013 as one of the first robo-advisors to address retirement planning and wealth management. Blooom specializes in 401k, 402b, and Thrift Savings Plan markets.
About Chris Costello
As Chairman and Co-Founder of blooom, Chris Costello, CFP took over twenty years of experience in the financial and retirement planning industry and incorporated it into pioneering one of the first financial robo-advisor solutions in the 401k and 403b markets.