Digital-first defined contribution support got a sizeable vote of confidence when blooom announced it raised $9 million in new funding, counting major insurers Allianz and Nationwide among its backers.

The firm's CEO and co-founder Chris Costello is obviously optimistic about the two-year-old firm's prospects, noting it managed to top its original fundraising goal.

"This year is all about growing from 6,000 clients today to 50,000 by year-end," Costello says. "We expect this growth to come both from our direct-to-consumer efforts and through offering blooom as a voluntary benefit to employees through their benefits package."

Speaking with Money Management Executive Costello says Kansas City-based blooom will not be developing a white labeled version of its offering, as other robo advisers have done with their platforms. The focus, he says, is on helping individual retirement savers.

"Part of our message here to employers is that it is great you offer a 401(k) and awesome that you are matching your employees contributions," he says. "But, come on, let's run that last mile of the marathon and make sure your employees are getting their allocations right." An edited transcript of the conversation follows.

Talk a little about blooom's growth. What tailwinds have helped?

According to what we can tell from the SEC filings, blooom grew to $500 million of AUM faster than the other robos post -launch (We officially launched to the public at Finovate NY in Sept. 2014). We surpassed $500 million in AUM 25 months later in Dec. 2016. The tailwinds that have helped us have been our organic growth.

Blooom is a very shareable service amongst co-workers. We will notice that a client from XYZ Company signs up for blooom and then over the following weeks, a number of their co-workers sign up as well and we haven't done any paid marketing targeting that specific company. There is definitely an "ah-ha" moment for people when they experience the four-minute free analysis of their 401(k) — that ah-ha is the surprise/delighted feeling that finally, something associated with their finances is simple and intuitive.

This latest cash infusion — what will go toward?

This cash infusion will be huge from the standpoint of buying us more time to prove our growth. We are not building a photo-sharing app that requires very little trust on the part of the user/client. We are building services to help Americans with, what often times is their largest financial asset.

This trust doesn't happen over-night. We believe we offer an incredible service for the cost and it we will continue to improve upon and offer new, simple services for our target market. Trust takes time to earn and can't be forced. Our team is in place so this round of funding will serve to give us the time to prove that we can scale growth.

You're taking investments from incumbent insurance firms. Are they looking to white label your tech? Can blooom teach these established firms about digital wealth management?

We're not interested in white labeling blooom. We're trying to build a financial services brand that's valuable to a whole new breed of under-served, ignored retirement savers. We're optimistic about some of these larger insurance incumbents helping us with distribution to some of their existing client segments. They are helping us with resources and distribution; we are helping them with innovative financial services to some of their client base that isn't getting this kind of help.

Can you talk about the importance of that as a digital advice firm?

It is clear that some of the early prominent names in the robo space required massive amounts of cash given the huge amounts of funding they sought. We don't believe we will follow that same path to growth, for several reasons. First, our cost of acquisition appears to be much lower — again we think this is helped by strong organic growth tailwind. Second, being based in the Midwest keeps costs down — as I like to say — us Midwestern folks really know how to stretch a buck!

What's the growth goal for blooom looking ahead? How far is an IPO?

This is a key year for blooom. We have an incredible team in place today (30 employees) growing to nearly 40 by year-end, and plenty of resources in the bank. We were looking to raise $8 million in our Series B round and ended up with $9 million.

This year is all about growing from 6,000 clients today to 50,000 by year-end. We expect this growth to come both from our direct-to-consumer efforts and through offering blooom as a voluntary benefit to employees through their benefits package. We have already had several large employers offer blooom so there is some early momentum building in this area. I have to think that blooom might be one of the easiest, fastest benefits for a company to offer. In theory, if Google called us today and wanted to rollout blooom to their 50,000-plus employees we could literally have that in front of their employees by the end of the day tomorrow. Part of our message here to employers is that — it is great you offer a 401(k) and awesome that you are matching your employees contributions.

In our analysis, generally about eight out of 10 employees have the wrong allocation or no strategy whatsoever. Very few even know how their 401(k)s are invested or what the hidden fees amount to.

How does the industry's shift to hybrid affect your model?

Blooom has a hybrid model as well. We have just done a really poor job of communicating that. Every one of blooom's clients has access to an advisor at blooom through our on-line chat feature. They can ask us anything money related and that help is included in the flat monthly price — we do not charge extra for this.

We answer questions all of the time for our clients about things like paying off debt, how much should they be saving, if they should refinance their mortgage, what a 529 is, and more.

It is something that I, as the CEO, personally still enjoy hopping into the queue to answer questions. It brings me a lot of personal satisfaction knowing that I am giving similar advice that I used to give to clients with millions of dollars in their portfolio to a blooom client that might be just starting off saving for their retirement.

How is blooom changing in response to other firms with digital platforms that aim to disrupt the 401(k) market?

So far, we have yet to see another entrant in our space specifically. On the other hand, there have been a number of firms launching products and services intended to help companies start a 401(k) plan for their employees. We are rooting for these companies to succeed because there are still some 50 million Americans that get up in the morning and go to work for an employer that hasn't gotten around to offering a 401(k) plan for their employees yet.

Blooom can work with anyone with a 401(k) and login credentials; doesn't matter what company or who your recordkeeper is, so clearly the market for what blooom provides would increase as more and more companies start to offer 401(k) plans to their employees.

The 401(k) has been criticized for not being enough to serve U.S. retirement needs. What's your perspective?

We agree. The 401(k) is not effectively reaching enough American workers but ironically, it never was intended to! When the 401(k) was introduced it was in an era where defined benefit (pension) plans were still alive and well.

The burden for retirement security is now squarely on the backs of American workers whereas 50 years ago, much of that responsibility fell on the companies themselves. Fifty years ago it was a lot more common for an American worker to spend 30-40 years working for the same company then retire, get a pension check in the mailbox for the rest of their lives.

Today, very few workers spend anywhere near that amount of time at the same company. So whether we like the 401(k) system is largely irrelevant. It is the default vehicle for saving for retirement and blooom's take on fixing it is not to get rid of it but instead give American savers an option to have it handled for them.

Wealthy investors have been hiring managers for decades to manage their portfolios; blooom is bringing this service to the masses. Imagine this — what if instead of offering health insurance with access to doctors and hospitals to their employees, a company instead just provided them with manuals, brochures, and on-line instruction tools that they could use to study up on how to perform their own appendectomies!

The wealthy employees might be getting help from an adviser with their allocation decisions but for everyone else — they are given a myriad of information and encouragement and the message is: "You too can be your own money manager. Oh, and by the way — it is only your retirement that hinges on you getting your investments, right!?"

The industry is moving into digital platforms. Do you expect them to change, or will they offer the same service and products in digital wrapper?

Moving to more digital offerings isn't being done because it is cheaper — it is in response to the market demanding it. The days where you would go sit down in a conference room across the table from a salesman in a slick eight-piece custom suit are quickly coming to an end for most people under the age of 40.

The next generation of investors isn't just comfortable in transacting their financial affairs online they are demanding it. To be relevant going forward, financial services will have to offer online solutions.

The face-to-face adviser isn't going away tomorrow but if you think about a 25-year-old today growing up with technology and their iPhone — my guess is that when that 25-year-old is 55 and has a $2 million portfolio they will not be wired to go running to an adviser and abandon their digital services.

That they will expect a tremendous amount of automation, transparency and simplicity in their financial apps and occasionally they will want to interact with a human adviser for very specific questions or issues.

Often, the rise of digital advice and the shift to passive funds gets balled together in some critiques. Is there room for improvement in mutual funds?

Nothing shocks me more, in the whole of wealth management, that there are still so many people that believe that active money management is a superior form of investing.

How much evidence needs to be unearthed before we come to the conclusion that active management is really active guessing (as I refer to it). I have an even more skeptical view of this - I think that active management persists because it is a way for money managers to bake in higher fees for themselves.

If they can continue to hoodwink a segment of American investors into the belief that they have figured out a way to earn superior returns with their crystal balls and guessing strategies then they can justify the higher fees. Fortunately this segment of investors falling victim to this is declining by the day. Although, I guess we still do need a robust segment of active managers underperforming year after year to assist with liquidity and to give us passive believers a group to make fun of.

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