Firms that manage your 401(k) for you aren’t common, but they should be. After all, millions of people hire third parties – such as traditional advisors or robo advisors – to manage their non-taxable investment accounts. Why not get professional management for what is likely the single largest investment account that you possess?
Headquartered in Leawood, Kan., Blooom was founded in 2013 to address this issue. The firm’s researchers analyzed more than 89,000 401(k)s, which included more than $3 billion in total assets, and discovered that 83% of 401(k)s are managed incorrectly!
Blooom manages only employer-sponsored retirement plans – there are no taxable investment accounts or even IRAs. One of the big advantages to this robo-investing platform is that they have the ability to manage any 401(k) plan, no matter where the plan is held or who the employer is. You don’t even have to have your employer enter into a partnership arrangement with the service.
And just as important, Blooom is a fiduciary, which means they’re required by law to act in your best interest, not theirs.
- ETFs and Mutual Funds Used — Based on investment selections available in your 401(k) plan.
- Assets Under Management — Blooom has over $3 billion in assets under management. NOTE: Remember, Blooom does not make any money off the funds in your account. Flat fee only.
- Payment — Monthly fees are paid via credit or debit card; your retirement account balance is never touched.
- Expanded Questionnaires (New) — Blooom has increased the number of questions it asks you in order to tailor advice to your unique situation.
- Give Blooom (New) — You can now give a year of Blooom to a deserving friend or family member.
It’s important to understand that the investments in your 401(k) may also have internal expenses. However, Blooom seeks to use the most cost-effective funds that are available in your 401(k) allocation in order to minimize those expenses.
How Does Blooom Work?
When you sign up with Blooom, the app manages your account for you, but you still maintain full control of the account at all times. You don’t even have to open up a new account or transfer the one you have. Blooom can work with any 401(k) plan that has online access.
The signup process is simple, and once it’s completed, Blooom will adjust your 401(k) plan within 30 days. It does this by factoring your current age against your expected retirement age. It then uses an exponential glide path that moves your account closer to the needed bond exposure for a typical retiree. In plain English, that means your portfolio will naturally be more heavily oriented toward stocks in your younger years and move more toward bonds as you get older.
Blooom uses a four-step process to analyze your 401(k):
- It looks at the options in your 401(k) and eliminates the funds that don’t make sense for you to own.
- It leans toward using index funds, but occasionally it will make sense to use actively managed funds to gain investment exposure where needed.
- Once Blooom has identified the appropriate funds that will get you closest to your target allocation, its algorithm will select the ideal investments based on expense and manager experience.
- A Blooom advisor double-checks the results and cross-references with your recommended 401(k) allocation.
As is typical of robo advisors, Blooom uses an algorithm to handle most of the work involved in establishing and maintaining your portfolio. However, your portfolio is also subject to review by licensed advisors to make sure everything is operating the way it should. Anytime investment adjustments are made to your 401(k), Blooom will send you an email advising you of the changes.
Investment selection. Blooom works with the investment options that are available in your 401(k). As noted above, it leans toward index funds, but it also adds actively managed funds if necessary to gain certain investment exposure. Blooom creates a target allocation consisting of the funds available in your plan that most closely support your desired allocation. All of this will be determined by Blooom’s proprietary algorithm.
Unlike typical robo advisors, however, Blooom enables you to make changes to your investment mix. Once your application is set, you still have the option to change it. You simply have to click the button that says Adjust Allocation and you’ll be able to make the changes. Future rebalancing will be consistent with those changes. In addition, you can also change your target retirement date simply by clicking Adjust Retirement.
It’s important to understand that you have the ultimate control over your 401(k) plan. Blooom acts only as an advisory service, and you’re always free to contact your plan trustee to make the changes you choose. Blooom will advise you anytime changes are made in your account, whether those changes were initiated by you or by the robo advisor.
Rebalancing. Blooom continuously monitors your account to make sure you’re staying within the recommended allocations. If changes need to be made, they will be handled by Blooom’s experts. This will enable your account to be adjusted for changes in market values. Regular rebalancing has been shown to add an additional 0.5% to the annual return on investment, and this is part of the benefit that comes from working with Blooom.
Right now, Blooom is offering a special promotion to Investor Junkie readers. Sign up for a new account and you’ll receive a special rate of only $99 per year. That’s more than $20 off the regular cost.
To get this special offer, use promo code REEETIRE or use one of the links we provide in this review.
Pros and Cons
- Professional Account Management — For most people, their 401(k) plan is their single largest asset. But they’re typically relegated to choosing among the investment options available. Investment management services are not provided. That’s what Blooom offers.
- Cheap to Use — At $10 per month, a $100,000 401(k) can be managed for $120 per year. That’s an annualized fee of 0.12%, which is at the very bottom of the spectrum for robo-advisors and well below fees charged by traditional investment advisors.
- Works With Many Different Plan Providers — Some 401(k) management services work only with plans provided by select employers. Blooom can work with any plan that has online access.
- Multiple Account Support — Blooom now supports multiple accounts to give a unified portfolio recommendation.
- Available for 401(k), 401(a), 403(b), 457 and TSP Plans Only — Blooom will not work with IRAs or with taxable investment accounts. At this stage of the game, it is set up specifically to work with the two major employer-sponsored plans. If you have also IRA accounts Blooom cannot asset allocate between all of them currently.
Is Blooom worth a try? Considering how reasonable the fee is — and that you can cancel at anytime — it’s well worth giving the service a try. This is especially true if you are among the majority of employees who have little real understanding what’s going on inside of your 401(k) plan. On the negative side, if you have retirement accounts outside of your employer, Blooom currently cannot assist with allocation. More advanced investors will have to look elsewhere.