Deals & People December 2, 2022

401(k) Robo-Adviser Blooom Shuts Services, Sells Tech to Morgan Stanley

A 401(k) robo-adviser with more than $5 billion in assets under management stopped servicing clients in November and has sold its technology to Morgan Stanley.

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A 401(k) robo-adviser that offered everyday 401(k) retirement savers a low-cost service to enhance their investments has shuttered its doors on clients while selling its technology to Morgan Stanley.

Blooom, based in Leawood, Kansas, posted a message on its website in November that it was shutting down its service “effective immediately,” but that the company was starting a “new chapter” that “will ultimately result in an enhanced offering in the retirement marketplace.”

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Morgan Stanley, meanwhile, has purchased the firm’s robo-adviser technology and brought on some of Blooom’s employees.

“To help bolster our retirement offering, we can confirm we bought components of Blooom’s technology in an asset purchase, while onboarding the Blooom team,” the spokesperson said in an emailed response.

The Kansas City Business Journal reported on November 18 that Blooom was shutting down its direct-to-consumer operations, but told the KCBJ it was not going out of business. On Thursday, RIA Biz noted that high-level staffers, including Chris Costello, CEO and co-founder, moved to Morgan Stanley. Costello’s LinkedIn profile lists him as an executive director at Morgan Stanley @ Work, the investment firm’s workplace financial solutions provider.

The firm declined to provide further details of the transaction. Morgan Stanley has been investing in its Morgan Stanley @ Work platform, most recently partnering with Carver Edison for expanded access to employee stock purchase plans.

Blooom executives and customer support team did not immediately respond to request for comment. The company said on its Q&A page that customers seeking an adviser would not be able to reach anyone as their advisers “will no longer be available during this transition period.”

Blooom reported having $5 billion in assets under management from clients who hired Blooom to manage their retirement plan investments for a flat annual fee, reportedly giving their credentials to the firm so its personnel could access these accounts. Those customers, according to a Q&A on Blooom’s website, are no longer getting those services and should revert back to their retirement plan holder to access their accounts. Blooom also said it had begun processing refunds and that clients should allow up to 10 business days to receive. The company did not say from what date refunding would start.

The Q&A notes that user credentials, such as IDs or passwords, will be permanently deleted, but that “Blooom will retain an archive of past transactions, correspondence, and other key information to meet its compliance obligations with the SEC.”

The firm also has language that appears to refer to the Morgan Stanley transaction, noting that Blooom “may transfer your contact and related client financial information, which is permissible under the terms of the client agreement and our privacy policy.”

It notes that “we or a future partner may be in touch with you in the future to discuss how to support you in achieving your long-term financial goals.”

Blooom has said its mission was to provide expert retirement help “to those previously overlooked by traditional financial advisers.” The platform provided a free analysis of a participant’s account to “identify unnecessary hidden investment fees, ideal diversification and investment risk.” If a participant signed up for Blooom’s robo-management, they would be charged a flat annual fee ranging from $125 to $295, according to a NerdWallet write-up.

Blooom had been successful in raising financing over the years, including from fintech venture capital firm QED Investors and Allianz Life Ventures, the VC-division of Allianz SE. In 2015, Blooom was among 10 firms given a Launch KC grant, which included $50,000 and 12 months of free office space in the city.

Robo-advisers have become an increasingly prevalent service for everyday retirement savers to get relatively low-cost investment guidance and management. Robo-advisers Wealthfront, Betterment, SoFi Automated Investment and Ellevest were among firms named by NerdWallet as the year’s best.

This June, the Securities and Exchange Commission said it charged Charles Schwab for “not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions.”

Charles Schwab in a release said it settled the matter regarding certain historic disclosures and advertising related to Schwab Intelligent Portfolios between 2015 and 2018. The investment firm said it “neither admits nor denies the allegations in the SEC’s Order,” and that resolving the matter was in the best interest of clients, the company, and stockholders.” Part of the settlement included the subsidiaries retaining an independent consultant to review their policies and procedures relating to robo-adviser disclosures; advertising and marketing; and to ensure they are effectively following policies and procedures.

Compliance December 2, 2022

U.S. Regulator Urges Congress to Act Fast on Crypto Regulation

CFTC Chairman says digital asset marketplaces should be regulated with tactics such as needing to register with federal overseers. 

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The head of a U.S. trading commission on Thursday called on Congress to move quickly to regulate the digital asset market after the swift collapse of cryptocurrency exchange FTX.

In remarks made before the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, the chair of the Commodity Futures Trading Commission said if Congress doesn’t regulate the digital asset sector it could harm not only cryptocurrency investors, but financial markets overall.

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“The events of the past few weeks embody—in the most regrettable way—the perilous state of the digital asset market,” Behnam said according to a prepared statement. “I strongly believe that we need to move quickly on a thoughtful regulatory approach to establish guardrails in these fast-growing markets of evolving risk, or they will remain an unsafe venture for customers and could present a growing risk to the broader financial system.”

The U.S. Department of Labor cautioned retirement plan fiduciaries to be careful in providing digital assets in 401(k) plans earlier this year, and the FTX collapse created a further chilling of interest among some advisers. Proponents of cryptocurrency in retirement plans point to surveying that shows workers—particularly younger ones—are interested in having access to digital assets in retirement plans.

Millions of 401(k) retirement savers currently have access to cryptocurrency investments through providers such as Fidelity Investments and crypto-investing proponent ForUsAll. Both firms this year have said they have made cryptocurrency available to workplace plan participants, with Fidelity making it available within the core plan lineup, and ForUsAll through the self-directed brokerage window.

Regulator Behnam told Senate members that if digital commodities are not regulated, it will leave consumers who have invested in digital assets “unprotected.” 

“Unlike other federal financial regulators, the CFTC lacks the necessary and direct authority to write rules and to oversee this marketplace,” Behnam said. “Instead, we may only reach it through more limited authority activated when fraud or manipulation has already occurred. While we can and do hold perpetrators accountable when we find fraud or manipulation, for the victims of the scheme, it is already too late.”

The U.S. Senate Committee on Agriculture, Nutrition, and Forestry and chaired by Debbie Stabenow, D-Michigan. Stabenow, along with ranking member John Boozman, R-Arkansas, in August introduced a bill called the Digital Commodities Consumer Protection Act (DCCPA).

In his remarks, Behnam recommended a shared regulatory responsibility between the CFTC and the Securities and Exchange Commission (SEC). The SEC would regulate digital asset tokens, while the CFTC would oversee a limited subset of commodity tokens.

The CFTC chair also suggested regulatory action such as requiring trading platforms targeting retail market participants to register with a federal market regulator. The platforms would be subject to requirements including the separation and protection of customer funds, maintenance of sufficient capital to operate, and public disclosures backed by independent, certified accounting, he said.

Without regulatory authority over cash digital commodity markets, the CFTC has relied on whistleblowers, Behnam said. These tips have led to 60 enforcement cases in the digital asset space since 2014, with total penalties of just over $820 million. In fiscal year 2022, more than 20% of the CFTC’s 82 enforcement actions involved digital assets.

“But as I suggested over a year ago, the fraud that we are able to prosecute is likely a fraction of what exists in the shadows,” he said.

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