A number of RIA firms with assets under management between $1 billion and $2 billion applied for and received Paycheck Protection Program (PPP) loans for help maintaining payroll during the COVID-19 crisis, according to updated Form ADVs submitted to the SEC this week. The recipients include Ritholtz Wealth Management, a $1.3 billion firm headed by CEO and CNBC contributor Josh Brown.
According to the firm’s updated ADV, the loan does not “materially impact” advisory relationships with clients and will be used to pay salaries for employees “responsible for performing advisory functions” (language that mirrors guidance the SEC released about PPP loan disclosure last month).
In an interview with WealthManagement.com, Brown said the firm pursued the loan in late March, when worst-case estimates for fatalities from COVID-19 were in the millions. To date, he estimated that 90% of the loan had gone toward payroll expenses and that the firm was not intending to pursue loan forgiveness, even though Brown said they’d used the money in such a way as to qualify.
“If we manage to get through this period without letting go of any employees and we can pay back our loan, I’ll consider it to be a badge of honor,” he said. “The outpouring of support from clients has been incredible. They’ve been business owners and they get it.”
The other firms receiving PPP loans included Redwood Investments, a Newton, Mass.-based firm with approximately $1.9 billion in AUM, and Ulrich Investment Consultants, an RIA out of Albuquerque, N.M., with about $1.6 billion in managed assets. Additionally, Larson Financial Group, an RIA with about $1.5 billion in AUM based in Chesterfield, Mo., will benefit from a PPP loan taken out by its parent company, Larson Financial Holdings.
Representatives at those three firms did not respond to requests to comment.
The PPP program is a part of the CARES Act, which the U.S. Congress passed in late March to help businesses maintain employee head count during the spread of COVID-19. The loans, which are eligible to companies with fewer than 500 employees, can be used for payroll, as well as certain other expenses, including mortgage interest, rent and utilities. The loan can be forgiven if the company taking the loan uses 75% of it toward payroll in the first eight weeks after it’s been dispersed, provided employees don’t suffer a 25% drop in pay and if the company’s employee head count is the same as of June 30.
Redwood’s loan totaled $359,500 and was received on April 20, according to the firm’s Form ADV. Like Ritholtz, Redwood pledged to use the loan to pay for salaries of employees responsible for advisory functions, as well as those offering support.
“Failure to meet the requirements and conditions for loan forgiveness may result in Redwood being obligated to repay the loan, potentially causing adverse financial conditions for the firm,” the form read. “To mitigate this risk the firm has adopted the following actions: an analysis of loan necessity, vetting of loan versus Redwood’s operating agreement outstanding, and a plan to monitor spending of loan proceeds in order to support any claim for loan forgiveness.”
Ulrich’s loan totaled $201,200, while the loan amounts for Ritholtz Wealth Management and Larson Financial Holdings were not disclosed in their Form ADVs.
Brown, who has more than 1.1 million Twitter followers, also noted that RIAs are one of the few industries currently mandated to disclose they received a PPP loan, and questioned how acceptance of PPP loans was being viewed by some in a critical light.
“I don’t understand why it’s being looked at like a Scarlet Letter,” he said. “These are business owners doing what they have to do to survive. And if they don’t keep employees, the loan isn’t forgivable."
