Sheila Bair understands the perils of the finance industry intimately. She's currently the president of Washington College, and formerly served as head of the Federal Deposit Insurance Corporation (FDIC)--an independent government agency that monitors bank deposit insurance funds.

Once praised by TIME as "the little guy's protector in chief," Bair is widely known for her management of such failing institutions as IndyMac, Wachovia, and Washington Mutual during the economic collapse in 2008. She also helped to craft the Dodd Frank reform bill -- notably, the section that seeks to forestall future bailouts -- that was signed into law two years later.

In an interview with Inc., Bair reflected on the state of fintech and shared her advice to companies seeking to manage, process, and lend money.

Those looking to invest in financial startups, she explained, should be asking, "How are they going to perform in a downturn, not just how would they do when times are relatively good or benign?" (It's worth pointing out that many fintech companies bolstered by millions in VC funding aren't necessarily profitable.) 

Overall Bair is optimistic about the state of the industry. "I think a lot of things during the financial crisis were called 'innovation' when they were just re-packaging abuses that we've seen for a long time," she said. "I do think technology can provide a lot of positive innovations in terms of lowering the cost, and making it more cost-effective to serve a broader range of the investing and saving public."

Why she joined the board of Blooom

Earlier this month, Bair joined the board of advisors at Blooom, a fast-growing robo-advisor based in Leawood, Kansas. The startup manages and analyzes a user's retirement savings plan (i.e., a 401(k) or 403(b)). She's also a board member for  Avant, a Chicago-based online lender that recently cut jobs and halted expansion plans amidst a difficult funding climate.

During a time when the industry is facing more scrutiny, it makes sense for Bair to take on more advisory roles. Regulators have also grown increasingly selective about what startups to back. Just last month, Lending Club, the fintech darling that made a splashy debut on the public markets in 2014, saw its founder and CEO Renaud Laplanche resign after confirmation that he had deceived buyers on the platform.

"Overall, this [the fintech industry] can be a positive, but regulators need to stay on top of it, and investors too need to look at the business model: Are they sustainable, are they providing good value to customers?" Bair explained. "There should be some market discipline as well."

Still, when asked about regulatory hurdles that Blooom could potentially face, the former regulator was adamant: "I think actually that regulation helps them," Bair said. "They're supportive of fiduciary standards -- they are fiduciaries -- so I think on that score that the current regulatory environment probably helps their business model."

Embracing transparency

Uniquely, Blooom charges a flat fee for its service, as opposed to charging basis points, which starts at $5 per month on accounts with $20,000 or less, and goes up to $99 per month on accounts with more than $500,000. The company now manages more than $300 million in assets, and has analyzed more than one billion dollars of 401(k) accounts since launching three years ago, according to president Greg Smith. 

Unlike some competitors, Blooom works with a user's existing retirement plan, and doesn't require them to move money into a new fund. "We're the only robo-adviser that can help any American no matter where they work," said Smith.

Bair, for her part, was attracted to Blooom's transparent pricing structure and "straightforward" business model. "It's just a reality that the economics of advising people with relatively small retirement accounts has been such that the bigger firms are reluctant to segment," she explained. "Using technology to make sure they're in the right allocation, in the lowest cost fund, is a very low-cost and transparent way."

"Certainly, most of the competitors are affiliated with a big broker or asset manager, so I think that's an advantage for them, but Blooom's counter to that is: 'We're independent. The only thing we worry about is serving you, and making sure you have a good allocation and low cost in your retirement account. I think that evens out and gives them an advantage.'"

How the U.S. could cut debt and make it easier for Americans to save

Ahead of the November's election, Bair hopes the next president will do more to fix the $1.3 trillion student debt crisis. It's an issue she finds intrinsically linked to graduates' 401(k) access (or lack thereof). "What you're paying back in your debt is going to encroach on what you can save, or the other kinds of credit," she said.

However, Bair argues that a proposal like Donald Trump's -- which suggests that federal aid should be restricted for a student pursuing a liberal arts degree -- actually caters more to the elite, and less so to the working class (a.k.a. those who need it most).

"What I don't think we need is more bureaucracy," she continued, adding that she's a proponent of income-based repayment. "I worry that when you see schools under-performing you just get more government mandates and reporting, and I think using the economic incentive is a much more elegant way and less bureaucratic and stifling way to deal with this. So I hope that's the direction the candidates on both sides go."

At the very least, Bair is an advocate for more economic incentives. "That way, we don't have schools abusing the financial system, and basically cashing out at the taxpayer's expense, and at the student's expense," she said.

Published on: Jun 14, 2016