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Ian McKenna: US advice firm helps investments Blooom


When Holly Mackay chooses to close her last-ever Platforum conference highlighting a US financial advice service as something that UK organisations should aspire to emulate, it must be something special. I agree with Holly – the company involved was one of the highlights of Finovate New York.

Blooom is another example of a bricks-and-mortar-registered investment adviser, the US equivalent of an IFA, recognising the opportunity offered by digital advice and building a new service to support the next generation of financial consumers. Co-founder Chris Costello has run The Retirement Planning Group for 10 years with Kevin Conard, during which time they have grown assets under management from $23m to $550m (£343m). Typical clients have around $1m-plus invested.

Costello recognised that people his age – 41 – are increasingly left out of the quality investment advice business because they do not have enough assets. He also found that financial consumers in that age group have an inappropriate asset allocation.

Eighteen months ago he decided to come up with a solution to support their typical clients’ children. Having looked at a number of other digital services, he found many that only give advice on 401k investments but did not take the burden of actually managing the money. He found many suggest changes but do not actually switch the assets. Blooom is essentially a discretionary digital wealth management solution focused on pensions that will take investment decisions, log into the client’s 401k for anyone with online 401k credentials and make trades for them. In the US, if an RIA firm holds login credentials they are deemed to have custody, so the Securities and Exchange Commission requires they have an independent audit. In addition, the credentials are encrypted as part of the normal process with Yodlee that screen scrapes the data. This then moves the data into a Morningstar filter that identifies a breakdown of each fund.

Customers are not put through a risk profiler. Costello does not feel they are suitable as he believes attitudes to risk vary depending on economic conditions in the market. I can think of a few people who would argue strongly they have evidence this is not the case but that is another discussion.

As Blooom only deals with retirement money it uses time to retirement as the sole determinant of asset allocation. A proprietary glide path has been built and the service recommends an asset allocation for each client based on their age. If a client is not happy with the recommendation there is some capacity for variation (up to plus/minus 10 per cent), beyond that it would not take the client.

Obviously this would not pass a UK assessing suitability requirement for a discretionary or advised service but as US regulators are so much more lax on such issues this is not an issue for Blooom. It would be interesting to see how this service might be embraced in the corporate market if it were delivered via a pension provider where the employer has selected a phased asset allocation as part of a default arrangement. It would be interesting to think of in the context of a simplified advice proposition. The service is very competitively priced at $10 per month for $5,000-plus and just $1 per month for under that.

Blooom uses a flower metaphor to indicate the health of the 401k fund. It monitors accounts and rebalances every 90 days, adjusting the stock to bond mix as clients near retirement.

The service is delivered via an app or the website and it takes about five minutes for users to enter the data needed. Simplicity and ease of use are seen as key differentiators. This is not an offering designed for active or do-it-yourself investors but for people who do not want to manage their money and want a simple process that can review it for them.

This market represents a very significant opportunity. According to the US Department of Labor last year there were 88 million in-force 401ks. Blooom was launched in stealth mode in April and has already attracted 50 clients with assets totalling $5m. Finovate saw Blooom’s full public launch so the founders will have been delighted with one of the coveted Best In Show Awards. The UK industry could learn much from the clarity with which it presents its proposition to make it easy for consumers to understand.

Ian McKenna is director of Finance & Technology Research Centre



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Christopher Petrie 27th October 2014 at 9:42 am

    I don’t really understand the point of this article.

    It’s all about investment advisers in a foreign country that work under entirely different rules than we do.

    Of course IFAs could offer “clarity” if there were few rules around what we say and do. But imagine running money or advising on money without doing a Risk Profile / Tolerance to loss exercise first! The FCA, FOS and every CMC in the country would have you banned, fined and bust within a year.

    So, what are we supposed to learn from this article? What’s next week – how pensions are arranged in India?

  2. Money Guidance CIC 27th October 2014 at 3:16 pm

    Christopher Petrie has a point. While it may be useful to know what is happening in the US, all these facts do is demonstrate that our ability to manoeuvre in the UK is limited so long as consumers are “protected” with excessive zeal (and such protection results in guesswork and a lack of direction on their part).

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