Granting PPP assistance to firms continues to be a politically sensitive issue. According to this report, four firms in the wealth management space received money, although their circumstances varied widely and not all operations involved managed HNW money.

The political heat on the high net worth advisory sector has gone up a notch with a story saying that several US wealth management firms have received federal aid linked to COVID-19.

The Wall Street Journal reported June 12 that several wealth firms have disclosed that they took federal funding from the Paycheck Protection Program, a forgivable-loan arrangement enacted by Congress to help small businesses survive.

Carson Group, overseeing $12 billion of assets, reportedly said in a securities filing in May that it received PPP funds. Cornerstone Advisors Asset Management LLC, which manages $6.3 billion, also tapped the program, as did Creative Financial Designs, with $1.4 billion in assets, and Ritholtz Wealth Management LLC, with $1.3 billion, the WSJ said.

Family Wealth Report has contacted the firms seeking comment, and may update in due course. The website of Creative Financial Designs appeared to be down as of today. Jamie Hopkins, a managing director at Carson Group, reportedly said in the WSJ article that the firm has multiple lines of business beyond its wealth-management unit, and some of those were affected by the state-by-state shutdowns. Its events arm, for example, has canceled nearly 80 events so far this year, and the firm is using its PPP money to cover those salaries. The WSJ said Cornerstone did not respond to requests for comment.

Creative Designs reportedly said in its filing that the “PPP loan was necessary to support existing operations without layoffs or reductions of employee compensation.” The firm added that it expected the loan would be forgiven and that it didn’t expect to suffer any interruptions in service without it. According to the filing, this firm has 157 employees, excluding clerical workers, of which 145 perform an investment-advisory role.

Josh Brown, CEO of Ritholtz Wealth, was quoted as saying that his firm plans to repay the money it received through the program.

Echoes from the past
The story has faint echoes of the controversy that raged when banks and other financial institutions in the US and abroad were bailed out with taxpayers’ money, fueling political anger about the different treatment of business sectors.

As the WSJ article said, small businesses qualified for such loans if they reasonably predicted a cut in revenue that would hit daily operations. This was a reason that several of the wealth management firms gave in their securities filings. Fee revenues tied to AuM would have been squeezed by the sharp market falls – although indices have recovered considerably from their March lows. 

The aid is controversial because wealth management organizations have not been forced to shut down, unlike restaurants, theaters and sports venues. Tens of millions of people have been made unemployed. 

The newspaper quoted one individual, Patrick Rush, chief executive of Triad Financial Advisors, as saying that the PPP payment to the firms was “absolutely ridiculous and one of the most disheartening things I’ve seen in my career”.

The PPP system has been criticized – as FWR can attest from talking to US businessmen and women – for not covering all firms and because many haven’t been able to obtain aid. A wider issue is the surge in the size of US public debt, and the likely call for tax hikes, such as on wealthier Americans, to pay it down.

Some money management firms have returned the money, the article continued. 

David Mabie, head of Chicago Capital, which manages $2 billion, reportedly said that his firm received $185,000 in funding in April. But Mabie and others at Chicago Capital decided to change their mind after the Los Angeles Lakers were called out for obtaining $4.6 million in funding. The money was returned less than a week later. The Lakers also returned the money.

(Editor's note: The FWR team will wait for more details to emerge and it is not going to rush into judgement. Clearly, the explanations given by the firms in the cases cited have some merit but the optics of this aren't great. It is essential that the businesses are as transparent as possible about the reasons for requesting the aid, whether it has been repaid, and who takes the decisions. These are fraught times and not everyone has forgotten the political fallout from the Wall Street bailouts a decade ago. We encourage readers to get in touch: email tom.burroughes@wealthbriefing.com)