Editor’s note: On November 15th, 2022, Blooom announced plans to shut down its 401(k) robo-advisor service. Customers will receive a prorated refund for their annual fee. Since Blooom never held client assets and only executed trades on their behalf, existing customers should expect their investment holdings to remain unchanged.
This article will review Blooom, a unique offering in the robo advisor space that provides low-cost, hands-off portfolio management for 401(k) and other retirement plans.
Here’s what we’ll cover:
- What Blooom offers.
- Their IRA and 401(k) management services.
- My own experience with their free retirement planning tool.
- When Blooom is (and isn’t) the right fit.
Blooom offers an affordable and high-quality solution for an important and oft-neglected financial planning task: choosing the optimal mutual and index funds for your retirement portfolio. What makes Blooom unique is that it manages your existing 401(k) and IRA (you don't move your account to Blooom). Blooom’s algorithm analyzes and optimizes your existing account. We recommend Blooom for investors with five figures or more in their 401(k) account who are unsure which funds to choose from those offered by their employer's retirement plan. Pricing starts at $120 per year.
- A mostly set-and-forget 401(k) and IRA solution for hands-off investors.
- Allowable accounts include 401(k)s, IRAs, 403(b)s, 457s and TSPs.
- Free analysis offers valuable insights regarding the health of your retirement portfolio.
- Maintains a fiduciary standard with the SEC.
- Blooom doesn’t factor in outside assets when choosing your asset allocation in an individual account.
- While great for those with a larger balance in their 401(k), their one-size-fits-all annual fee eats into the returns of smaller investors.
Blooom Review: The Basics
Blooom is an SEC-registered investment advisory firm that offers:
- 401(k) portfolio management. Blooom recommends the ideal mix of funds from the options offered within your existing retirement plan. Depending on your plan, Blooom can act as a robo advisor, automatically rebalancing and adjusting your portfolio over time to optimize for returns and risk.
- IRA portfolio management. Blooom offers a similar service for IRA accounts (but it’s only available with a select few providers).
- Financial advice. Blooom’s newest offering is one-on-one financial advice, either through email/chat or via a live video consultation.
- Free 401(k) plan checkup. You can link your existing retirement accounts and have Blooom analyze your current strategy.
- Blooom is a fiduciary, which means the company is required by law to act in your best interests.
Blooom IRA and 401(k) Management
First, let’s take a look at Blooom’s core service: 401(k) and IRA management.
When you sign up for their investment management service, Blooom’s algorithm works to optimize your fund choices, rebalance your investments and minimize your fees.
This optimization occurs within your current investment accounts. You do not move your investments to Blooom; the funds stay right where they are.
Instead of charging you a fee based on the amount of money you have invested, Blooom charges an annual subscription fee.
Using an online platform like ths is a lot cheaper than some of the alternatives. For example, hiring a financial advisor could cost you $150 an hour or more. In contrast, Blooom offers three different pricing tiers, the cheapest being $120 a year.
Evaluating the different account levels, you have:
- Personalized Portfolio. For a $120-per-year flat fee, Blooom’s Personalized Portfolio option analyzes your existing IRA and 401(k) account and identifies the best available investment options for your particular situation. At this level, investment management isn’t completely hands-off, as you’re still in control of making the trades.
- Advisor Access. Gives you the same portfolio recommendations as offered in the Personalized Portfolio option, but allows you to have Blooom place trades on your behalf. You’re also eligible to connect with a financial adviser through chat or email.
- Financial Consulting. Gives you all of the above, plus an annual call with a financial advisor.
Blooom’s Free Risk Tolerance Quiz
In order to provide customized portfolio recommendations to help you reach your retirement goals, Blooom starts you off with a short risk tolerance quiz. This quiz is free and worthwhile.
After you’ve completed the quiz, Blooom syncs with your existing retirement accounts to provide your report and customized suggestions for improvement.
You’ll see your current asset allocation:
The suggested allocation Blooom recommends:
And the fees you’re currently paying:
Blooom’s free tool then allows you to look forward to see the type of retirement income you’re projected to have off of your current level of savings.
What makes this a great planning tool is that once you’ve completed the basic onboarding questions and risk tolerance questionnaire, Blooom allows you to adjust the numbers — such as your estimated age of retirement, annual savings, Social Security earnings and more — to see the impact those changes would have on your retirement income.
Again, this is all free. And since the tool utilizes actual portfolio balances (rather than estimates), it’s some very valuable information for you to know.
Blooom’s Investment Process and Philosophy
In their FAQ section, Blooom says the following:
Q: What is the rationale behind the allocation you chose for me?”
A: We focus on three main things…
Here is the order of importance within our methodology:
– Get the stock:bond ratio appropriate for your timeframe to retirement.
– Get you exposed to every appropriate asset class possible within your 401k fund lineup.
– Select the lowest cost funds for each asset class.
What exactly does that mean?
- Risk tolerance. Blooom starts you off with a risk-tolerance questionnaire. Your answers to these questions determine the level of risk you’re willing to take. Knowing your risk tolerance is vital because having a portfolio that’s too aggressive could cause you to sell at the wrong time. A portfolio that’s too conservative might mean you’re missing out on potential returns.
- Asset allocation. With your risk tolerance in mind, Blooom determines an appropriate balance of stocks and bonds — i.e., an asset allocation based on your desired retirement age. (Improper asset allocation is one of the main reasons why people lose money in their 401(k) and other retirement accounts.)
- Fund selection. Next, Blooom’s algorithm recommends the best funds you have available in your IRA and 401(k) accounts based on your risk tolerance and years until retirement. If you’re on the Advisor Access or Financial Consulting plans, Bloom can automatically buy and sell the funds inside of your portfolio to get the right balance for clients on the
- Rebalancing. If you’re on the Advisor Access plan or higher, you can have Blooom rebalance your portfolio automatically about once every 95 days. Regular rebalancing has been shown to increase returns and decrease risk over time.
Note: Fi
Blooom Compatibility
Blooom is compatible with the following account types: 401(k), 401(a), 403(b), 457, IRA and thrift savings plans (TSPs).
However, the only institution Blooom offers full IRA management for is Fidelity. They also offer IRA service with Vanguard, TD Ameritrade and Charles Schwab, but for accounts held at those institutions you can only get a custom recommendation; Blooom is not able to actually trade on your behalf.
Blooom does not work with taxable investment accounts, nor does it adjust your asset allocation based on your investments in these accounts.
For example, a common strategy is to put tax-inefficient investments inside a 401(k) and tax-efficient investments in a taxable account. Since Blooom doesn’t use outside investments to determine your asset allocation inside of your 401(k), this could skew your overall asset allocation.
Blooom Pros and Cons
Using Blooom may be able to help you increase the value of your retirement account. But the company’s IRA and 401k management is not for everyone.
To help you decide if Blooom is right for you, here’s a list of pros and cons.
Blooom Pros:
- Blooom is a fiduciary. Simply put, they’re required by law to act in your best interest.
- It’s affordable. Blooom’s management fee is a simple, low annual cost. There are no hidden fees.
- No balance minimums or maximums. You can use Blooom even if you just have $1 in your account.
- No long-term contracts. You can cancel at any time.
- Customized for retirement age and risk tolerance. Your asset allocation is customized based on your desired retirement age and your answers to a risk tolerance questionnaire.
- Helpful free retirement planning tools. Their free tools offer a lot of value. You can view your estimated retirement income based on your current level of savings, adjust your retirement date to see how it impacts how much you need to save, adjust your savings rate to view how it impacts your retirement date, and much more.
- Unlimited accounts. If you have more than one retirement account, Blooom can manage them all for the same annual fee.
Blooom Cons:
- Only works with employer-sponsored plans. Blooom doesn’t factor in non-retirement assets when choosing your asset allocation.
- The flat fee is more expensive for smaller accounts. While the flat fee works to your advantage if you have a large account, it’s a disadvantage for smaller investors because it’s proportionally more expensive on a percentage basis.
Who Is Blooom Best For?
If you’re considering Blooom’s automated investment management service, here are a few scenarios where it makes sense — along with some circumstances where it doesn’t.
Blooom is ideal for the hands-off 401(k) investor. This is someone who hasn’t read a book on investing or whose eyes glaze over when they hear the term “rebalancing.”
Blooom isn’t ideal for higher net worth investors who have a tax-efficient asset allocation plan in place and a majority of their net worth outside their 401(k). As Blooom only optimizes your 401(k) and not other investments, it’s this situation where tax efficiency may trump the value Blooom can bring.
Another scenario I wouldn’t generally recommend Bloom for is when an account balance is under $10,000 and someone isn’t adding a significant amount to their investment portfolio. Since the account balance is small, I’d recommend picking the lowest-cost stock index fund and revisiting it once you’re ready to ramp up your savings rate.
Related: How to Start Investing for Retirement in Your 20s, 30s and 40s.
At the bare minimum, it’s important for every investor to check in on their investment fees. This can be done with Blooom’s free analysis tool, which has a lot to offer.
Blooom FAQ
Whether or not Blooom is worth it first depends on the quality of your retirement plan options, and second on the balance you have in your retirement plan. If you do have a great retirement plan with good fund options and low fees, Blooom offers less value. It’s when you have a sub-par retirement plan (which is common at smaller companies) and a large balance that Blooom is very valuable.
Blooom is an SEC-registered company as well as fiduciary (meaning they’re required to act in your best interest). Security for customers includes 256-bit encryption. To protect the personal data they collect, Blooom uses a secure socket layer (SSL) and stores information in an electronic database.
Since Blooom doesn’t hold on to your assets, they don’t offer SPIC insurance. That insurance would be found with the trustee of your plan.
Blooom has a very unique offering in the 401(k) space, in that it doesn’t hold your assets but manages your existing account. So while it’s often compared to robo-advisors like Betterment and Wealthfront — and rightfully so since their portfolio management strategies are very similar — what these companies offer is very different.
That said, there are some alternatives when it comes to what Blooom has to offer with its retirement planning tools. One such alternative is Empower.
While you can read our in-depth Empower review to learn more, the suite of financial tools it provides is significantly more robust. Empower doesn’t offer a 401(k) robo-management service like Blooom, but its free financial tools include everything Blooom has to offer plus the ability to add taxable accounts, measure your net worth and track your income and expenses on a monthly basis.
So if you’re looking to Blooom just for the free analysis tool, our recommendation would be to check out Empower first.
Blooom’s financial advisors provide guidance primarily geared towards your retirement investments that Blooom has access to. With only a 30-minute call annually, there isn’t enough time to work through a more formal financial plan.
Blooom does not manage assets held within a self-directed 401(k) plan.
Blooom Review: Final Thoughts
As a CFP®, I’ve seen my share of 401(k) horror stories and mistakes.
With regard to horror stories, 401(k) fees can be outrageous. This is especially true for those working at small to medium sized companies, where fees above 2% are common.
With regard to mistakes, the fact is that asset allocation is difficult. Some plans have a target retirement fund, which may simplify things, but fees on target retirement funds can be quite high. As such, someone might be better off picking low-cost index funds instead.
But this person must then allocate their assets based on their risk tolerance. Then, they have to rebalance when it’s in their favor. That’s not easy.
That’s where a tool like Blooom can help.
If you plan on having a significant portion of your assets in a 401(k), it’s important that you get it right — especially if you want to hit your target retirement date.
And for a very reasonable fee, you can use Blooom to help with just that.
I’d start with the free checkup. If there’s at least one red flag, chances are you’ll benefit from the subscription plan.
I have a question about bloom. Did you get better return on your money after bloom was looking after your investment account? Was the performance of the account doing better? Just curious. Im hesitant about anyone looking after my money.
Hi Beau,
Good question. Just to clarify, I didn’t sign up for Blooom’s investment service. Also, since every 401(k) is different, hard to compare returns.
I can say that overall Blooom uses some more advanced asset allocation techniques than what most are able to do on their own with their 401(k) or TDFs provide.
Their goal is to find the highest return for your given level of risk with the available investment options (e.g. efficient frontier).
So, it’s not so much about comparing returns in the short term, it’s about finding the asset allocation that’s going to be best for your long-term.