Do Financial Advisors Deserve PPP Loan Bailouts?

On July 6th, the SBA released information on PPP loans of $150,000 or greater; it seems that over 1,400 wealth management firms were on that list. It would also be reasonable to assume that many more firms received these potentially forgivable loans but were beneath the SBA’s $150,000 disclosure threshold. As you would expect, quite a few people flipped out over these disclosures. Do financial advisors deserve PPP loan bailouts?

If you don’t recall, a key feature of the PPP loans is that, given certain criteria are met, they could be 100% forgiven. It’s free money – with a few caveats, hence the clamor to apply for these loans when the program was announced. Sounds like a good deal for a small business owner, right?

But do financial advisors deserve PPP loan bailouts like other small businesses? If they really need these funds, should they be giving out financial advice in the first place? If they didn’t need these funds, aren’t they just like the greedy Wall Street firms?

The answer, I think, is complicated.

Full disclosure: I did not take a PPP loan. I applied for one. I was offered one. I turned it down. I’ll share my story a bit later.

Big Firms Muscle Up

First, let me be very clear. I do not believe it’s necessarily wrong for a wealth management firm to have taken a PPP loan. A large number of firms are small businesses like mine and the PPP loan program was designed to help small business.

As an independent financial advisor in Atlanta, running a firm can be extremely difficult, especially when you’re competing against behemoth Wall Street firms who can literally afford to spend millions every day in advertising. I know several independent advisors who took PPP loans. I’m glad they did – their businesses deserve to stay afloat during the pandemic shutdown. I do not believe that they should be shamed for taking these loans.

However, many of the firms who received PPP loans are not small businesses, even if they did qualify under the rules of the PPP loan program. These firms manage billions of dollars. Even a few Atlanta based firms were given quite large PPP loans.

As the details of the program have recently become public, the large firms who accepted PPP loans are facing harsh criticism. Just as Shake Shack, Ruth’s Chris, the L.A. Lakers and others were publicly skewered for taking these loans, it seems that many of these multi-billion-dollar firms are capitulating and publicly stating that they plan immediately return the funds if they haven’t already.

If the public relations fallout was bad enough to force capitulation, then I guess they didn’t really need the money in the first place.

Here are the lists, collated by Please note the “jobs retained” column.

Do Financial Advisors Deserve PPP Loan Bailouts?

Was it illegal for a financial advisory firm to take a PPP loan? Absolutely not. The SEC has even issued guidance requiring firms who received the PPP loans to include that information on their Form ADV Part II. So, the SEC has even tacitly acknowledged that it’s okay for firms to receive the loans as long as they are disclosed.

Was it ethical? It depends. As I mentioned earlier, small firms, new firms or firms who bill on an hourly or retainer basis have a legitimate business reason to accept a PPP loan. I would be curious to know how many of these firms were included in the PPP loans that were under $150,000 and therefore not disclosed by the SBA.

In the case of these small firms, I wholeheartedly support their decisions.

I also believe that being shoulder-to-shoulder with clients is important too. I advised clients and friends to apply for the PPP loans. Was it right for me to not apply the same financial prudence to my small business?

What about the established, billion-dollar firms? Here, I think it gets a bit murky. On an enterprise level, many of these firms were in existence during the financial crisis of 2008 – 2009. They know how to manage their cash flow during bear markets. Whether they actually put that knowledge into use is a different issue.

Then there’s the spirit of the PPP loan program. There were plenty of businesses out there who were concerned about keeping employees fed and the lights on while revenue went to zero. The big wealth management firms saw revenues drop – let’s say by 15%, 20% or even 25%, depending on how much risk they were taking for clients. That’s a whole lot easier to stomach than dropping to zero. And it’s recurring revenue.

If firms were debating on whether or not to lay off employees, I can see where the PPP loan sounds attractive. But then again, we’re supposed to be financial planners. I think there’s a higher standard at play here.

As financial advisors, we’re in the integrity business.

Who needed the money more? The wealth management firm that manages billions or the local taqueria down the street with the same number of employees? Surprisingly, there’s somehow still $130 billion left from the original $670 billion originally earmarked for PPP loans, so the “who really needs it more” question is moot for the moment.

There’s also the issue of profitability. While the revenues are much higher, the profitability of the mega-firms is much lower. This make sense – they have to pay for support staff and high-end office space. In order to keep staff employed, they may actually need the PPP loan funds where a well-run independent firm could get by with lower revenue.

However, with the recent market recovery, most firms should have seen their revenues increase accordingly (and in proportion to the recovery of their clients’ portfolios). This turns the any forgivable PPP proceeds into a way to make up for one bad quarter. For that reason, I don’t believe that large-firm financial advisors deserve PPP loan bailouts.

I think that many of these firms saw “free money”, remembered the business struggles of the Great Recession and took the loans. I bet they thought they would be able to bury the disclosure in their Form ADV and no one would be the wiser.

My Experience With the PPP Loan Program

When the CARES Act was passed and the PPP loan program was announced, most financial planners had to become experts in these changes almost overnight. We all knew there would be only so much money to go around. We all dove into the details, attended webinars and had endless conversations with accountants and bankers. They were all trying to figure it out as much as we were.

As I talked with my clients and friends who were business owners, I encouraged them to apply for a loan and participate in the program. Predictably, most of them were reticent to take a loan, especially if the SBA was involved. Everyday, hard working people don’t like the idea of taking bailout money!

But as I told one business owner friend – there were going to be a lot of terrible businesses who would apply for (and get) these loan funds. As a taxpayer, I’d also like to see your business be the beneficiary of this program. Let’s allow our government to help out our small business owners who bear a large tax burden of this nation.

It all seemed too good to be true. I poured over the details of the program trying to find all the hidden pitfalls.

During the process of getting educated on the program, I started the application process for my own business. The details of the program were unfolding before us on a daily basis. Part of it was curiosity and part of it was wanting to get in the queue in case this was something that was right for me, being genuinely concerned for my own small business. I could potentially take the loan – and then give it back if it wasn’t right. Going through the application process certainly helped me assist others.

In fact, I applied twice after Bank of America initially rejected my application. Turns out that they only wanted to give PPP loans to customers who had business credit cards with them. They got into trouble for that. I also went through the application process with PayPal’s lending arm, LoanBuilder.

Let me tell you, there was very little in the way of vetting the quality of a loan applicant. I’m assuming that they figured that they would be able to determine the forgiveness aspect when people filed their 2020 taxes next year, throwing the burden on the CPA community.

Get ready for a lot of accounting fraud next year.

After going through the process, both Bank of America and LoanBuilder approved PPP loans for me. I must admit, the idea of “free money” was appealing, but it wasn’t the right thing to do. At one point, a representative from Bank of America called me to confirm a few things and let me know how to proceed. When I told him I didn’t really need or want the loan, he was genuinely shocked. He praised me for my honesty. I thanked him and asked him to make sure those funds went to a business that was in need.

But rest assured, both Bank of America and LoanBuilder emailed me every day for the next month trying to get me to take that loan!

Why I Didn’t Take a PPP Loan

In the end, I couldn’t accept the loan. As a small business owner, it certainly seemed appealing. As a fiduciary financial advisor, it didn’t sit well with me. It didn’t pass the “mirror test”. My revenue was down, but my firm is growing. I would be okay.

As financial advisors, we’re in the integrity business.

Additionally, I kept viewing the necessary ADV updates as a PITA. There’s a good sign that it wasn’t needed. And if I did get the loan and disclose it, would that open my firm up to additional scrutiny during an audit?

But the main reason I refused my PPP loan was that there were others who needed the funds a whole lot more. Specifically, a good friend of mine had not been able to source a PPP loan for her business. Sales had slowed to a near-halt and she was concerned about making payroll.

I directed my friend to LoanBuilder and said a prayer. Please let these funds and a little good karma go my friend.

She got the loan.

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