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 Financial Planning, Costello says Kansas City-based blooom will not be developing a white labeled version of its offering, as other digital firms have done with their platforms. The focus, he says, is on helping individual retirement savers.

"We are building services to help Americans with what often is their largest financial asset," says blooom CEO Chris Costello. "This trust doesn’t happen overnight."
"We are building services to help Americans with what often is their largest financial asset," says blooom CEO Chris Costello. "This trust doesn’t happen overnight."

"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 has helped?
The tailwind that has helped us has 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.

This latest cash infusion — what will it go toward?
It 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 client. We are building services to help Americans with what often is their largest financial asset. This trust doesn’t happen overnight.

You’re taking investments from incumbent insurance firms. Are they looking to white label your technology? Is there a cultural exchange too?
We are not interested in white labeling blooom. We are trying to build a financial services brand that is valuable to a whole new breed of underserved, ignored retirement savers. We are 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.

How important is keeping bottom line costs down for 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!

There's a shift to hybrid robos in the digital advice market. How does that affect blooom?
Blooom has a hybrid model as well. Every one of our clients has access to an adviser through our online chat feature. They can ask us anything money related and that help is included in the flat monthly price. We answer questions all of the time for our clients, such as how they can pay off debt, how much should they be saving, if they should refinance their mortgage, what is a 529, etcetera. As CEO, I 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.

Since blooom launched, others have seen a potential to disrupt the 401(k) market. How is it changing in response to digital platforms?
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.

The asset management industry is moving to digital offerings and platforms. Do you expect them to offer something new, or just place the same service and products in a digital wrapper?
Moving to more digital offerings isn’t being done because it is cheaper — it is in response to the market 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 — my guess is that when they turn 55 with a $2 million portfolio, they will not be wired to go running to an adviser and abandon their digital services. 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.

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Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.