Saturday, August 22, 2015

Thrifty Thinking: Robo-Advisors

What is a robo-advisor and why are so many women using them for their family finances?
A Q&A with Chris Costello, Chris Costello, Co-Founder & CEO of blooom.

1.)  What is a robo-advisor?

A robo-advisor is an online investment service that automates the recommendations and asset management on behalf of the investor.  It is typically low-cost, has low account minimums, and attracts investors who are comfortable doing things online.

2.)  Why do you think so many women are utilizing the same for their family finances?

It’s a matter of convenience and the ability to delegate. Women can get overwhelmed with the responsibility they hold for themselves, their career and their families. Robo-advisors give women the ability to delegate at least some of their financial responsibility to a service that will provide professional and consistent management. This frees them up to tackle the more pressing day-to-day matters.  Finally, as the saying goes: women (much more so than men) are willing to “stop and ask for directions.” In other words, women are much less likely to let their egos trump what is best for their financial future!

3.)  Typically, are women the ones that are handling the family finances?
Women are more likely to handle the day-to-day family finances. Knowing what the routine household expenses are is essential to the financial health of the family. So with this knowledge, they generally share the responsibility of making the overall financial decisions. Moreover, a recent study shows that millennial women are taking increased responsibility as the overall financial decision-maker in their home.

4.)  What are some of the benefits of a robo-advisor?

The biggest benefit is it provides access to a professional portfolio management service to people who don’t have large enough accounts to attract the help of a traditional face-to-face advisor or who don’t have the time/desire to manage the account properly on their own.

And as explained above, it is a good match for people who are comfortable utilizing online tools and delegating this responsibility to a professional.

5.)  What’s blooom and how does it compare with other robo-advisors?

Blooom is an online Registered Investment Advisor built exclusively for helping middle class Americans with their single largest financial asset – their 401(k), 403(b), 457, or TSP.  Other robo-advisors, such as Wealthfront and Betterment, can only deal with IRA’s and taxable accounts.

Personal service is very important to blooom.  Ironically, most robo-advisors don’t advise, they merely manage. Blooom, on the other hand, not only manages its clients’ retirement portfolios, it has a certified financial planner available to advise clients on their financial questions as well.

Blooom is a fiduciary service. This means it is required by law to act in the best interest of its clients, not its own.  Remarkably, not all advisors (robo or otherwise) are held to this standard.

Blooom charges a flat fee for its service. Many robo and traditional advisors still utilize the complicated basis point system of charging.  With blooom you pay a low monthly fee. You also understand exactly how much you are being charged, which is difficult to discern through the traditional basis point system.

6.)  What is your fee structure?

Blooom will analyze your 401k for free. To manage, if you have greater than $20,000 in your 401k it charges $15/month. If you have less than $20,000 in your 401k it charges $1/month. This expense can be paid via a credit or debit card.

7.)  What is the best piece of advice you would offer a mother when it comes to their family finances?

Have a financial plan.  Having a financial plan leads to greater confidence and lower debt, which results in less stress.  Fortunately, with today’s technology there are convenient and reliable online tools to not only help make short-and long-term plans, but to help people carry them out as well.  This allows them to take control of their finances, rather than their finances controlling them.


WOMEN AND FINANCIAL POWER STUDY, Ameriprise Financial, June 2014.

About blooom
Named "one of the best online tools for retirement planning" by the Wall Street Journal, one of the “Top 10 Most Innovative Companies in Personal Finance” in 2015 by Fast Company and “Best in Show” at the annual Finovate conference, blooom is an online tool that assesses a consumer’s 401(k) in about five minutes from start to finish—and provides ongoing professional management for only $1/month for those with less than $20,000 invested ($15/month for those with more than $20,000).

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