Wealth management companies have taken PPP loans amid a coronavirus pandemic

Natasha Alipour Faridani | DigitalVision | fake pictures

The government’s release of data on companies that have participated in the Paycheck Protection Program confirms what many in the financial advisory industry already knew: Wealth management companies were among those who took out loans from the government.

Data released by the Small Business Administration and Treasury Department on Monday included loans of more than $ 150,000 that were made through the PPP.

The loan program was created under the CARES Bill of more than $ 2 trillion passed by Congress in March. A list of borrowers had not been released until Monday. The government did not reveal the names of companies that took less than $ 150,000, in an effort to protect small businesses.

The average loan amount was $ 107,000, according to the SBA. Loans of less than $ 150,000 represented 86.5% of loans made.

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The list of largest borrowers that was released includes wealth management companies across the country. Those companies also disclose their borrowing activity in their own public presentations.

The move to take that money sparked debate within the industry. Wealth management executives mentioned their need to protect their businesses and therefore their clients, underpinning their financial reserves in the face of a crisis.

Others argued that financial advisory firms do not face the same dire circumstances as companies in sectors that have been forced to close due to the pandemic.

“I admire companies that didn’t, but I also don’t despise companies that did,” said Philip Palaveev, CEO of The Ensemble Practice, which offers internship management programs and consulting services to financial advisory firms.

For many companies, the need to tap those government funds was likely fueled by the Great Recession, when between a quarter and a third of the industry suffered layoffs, Palaveev said.

“In March and April, when the industry was watching what was happening, I think many companies thought that this would be another version of 2008-2009,” said Palaveev. “So they did anything and everything they could.”

Another reason advisory firms were attracted to the loans: the attractive terms they offered.

“There are many, many forms of financing,” said Palaveev. “But in the decision-making sequence, nothing beats forgivable loans.”

“There is no form of financing that is as favorable or desirable as forgivable loans.”

Ethical questions asked

Not all companies that participated in the program plan to apply for loan forgiveness.

Josh Brown, CEO and co-founder of Ritholtz Wealth Management and CNBC contributor, has spoken publicly about the controversy caused by a PPP loan caused by his company. After repaying the loan, Brown now says he would not have taken the money in the first place because of the negative attention.

However, accepting the money did not detract from other companies, he said.

“There is $ 150 billion in the program,” said Brown. “Right now.

This is for butchers, bakers, and candle makers. This is not for RIAs.

Daniel Wiener

president of Adviser Investments

“Anyone who feels they need it can borrow it,” he added. “So what is the problem?”

Leftover funds now total about $ 132 billion, according to information the SBA released Monday.

Whoever gets the money shouldn’t get as much attention as someone who asks for forgiveness, Brown said. His signature was never intended to ask for forgiveness, he said.

The reason Brown’s firm took the loan was because the terms were so attractive: six months grace period before the repayment expired and a 1% interest rate. After the controversy, Brown said his company would have been better off taking a regular line of credit from a bank, which they finally did.

Daniel Wiener, president of Adviser Investments, said his company also applied for a PPP loan and was approved. But Wiener and his company changed their minds before taking the loan. Now, Wiener has become a critical critic of the registered investment advisory firms that take the money, and said they were doing it “giving the fist.”

“This is a money grab, like a land grab,” said Wiener. “We can take this money and even if we pay it back, it’s only 1% interest.”

Wiener and his partners agreed that accepting money just to ride out a bear market is unethical.

“This is not for us,” said Wiener. “This is for butchers, bakers, and candlemakers.

“This is not for RIAs.”