With most tax returns now past their filing deadline, some investors and their wealth advisers face the possibility of scrutinizing the free money they received during the pandemic.
is more than $800 billion of easy-to-find, mostly-forgivable loans Nearly 11 million businesses were donated in 2020 and 2021. It’s a financial lifeline intended to strengthen the backbone of the American economy when COVID-19 nearly brought things to a halt. About 92% of federal loans have been forgiven by the government.
Not surprisingly, for quick cash requiring scant paperwork and honor system claims, fraud was rife. paying attention with
As of March 23, the IRS 975 fraud cases totaling $3.2 billion For businesses and individuals who improperly received Paycheck Protection Program loans in 2020 and 2021, this is likely the tip of the iceberg. $117.3 billion paid out to scammers.
Wealth advisors don’t always know what a particular small business client is going to do. If a customer fails his PPP loan review, “we’ll show you how to fix it,” said Clark Kendall, president and CEO of Kendall Capital in Rockville, Maryland. . “And be sure to document it.”
in the meantime, About 3,000 investment management companiesAccording to an academic study by academics at the University of San Diego and Frostburg State University in Frostburg, Maryland, nearly one in four of all SEC-registered advisors used PPP plugs to make 590 million dollars. earned a dollar.in the Journal of Banking & Finance.
The government has made available PPP loans of up to $10 million at an interest rate of 1% to businesses with fewer than 500 employees. This was later relaxed restrictions on the hotel and restaurant industry. Firms must use the loan for payroll costs for up to 10 weeks, up to $100,000 per worker per year, for two to six months after receiving the loan, and maintain wages close to pre-crisis levels. there was.
Loan recipients can also use the money to pay interest on business mortgages, rent, utilities, paid medical leave, insurance premiums, and state and local taxes. Businesses may be forgiven for loans if they spend at least 60% on labor costs.
FINRA, which oversees brokers and tracks independent advisers, said in January 2021 it was considering loaned advisers. Strengthening of non-business activitiesFor example, selling privately owned securities that are not disclosed to employers or handling confidential client information. Brokers and advisors are expected to disclose such activities in a document known as Form U4. Disclosure needs to be updated.
Asked for comment on the scrutiny, FINRA spokesman William Bagley said on Monday, “We are unable to provide information on ongoing reviews.”
of Journal of Banking & Finance Of the $590 million in loans received by 2,999 SEC-registered investment advisors at the time, more than 6 percent were inappropriate and “abnormally large,” according to the study. These loans were directed at companies “abusing” government programs, write authors William Beggs of the University of San Diego and Tuon Harvison of Frostburg State University.
Most of the dollars went to smaller or smaller financial planning and wealth management companies such as: Sprague Wealth Solutions San Ramon, California ($2,585) and Executive Wealth Advisor Marlton, New Jersey ($3,864). About 92% of loans have been forgiven. The Small Business Administration does not distinguish between businesses that get free money from businesses that pay it back.
However, some big industry players with bold names in wealth management also made money.
Dynasty Financial Partners of St. Petersburg, Fla., a network of advisors overseeing about $68 billion. repaid the debt 2021 years.
Resoluts Wealth Managementhas overseen $1.3 billion in 2020, borrowed about $602,000 in 2020 and paid it back quickly, Institutional Investor reported. storm of public criticism.
focus financial network received $927,200 in Minneapolis, did not repay money.
carson group of Omaha received a $4 million loan in 2020 to cover its events and coaching business. A company spokesperson, Megan Belt, said the company had returned the money.
Some wealth advisors still view this loan as a sign of actual or perceived financial weakness.
“We just decided it wasn’t worth it,” said Perry Green, chief financial officer and senior wealth strategist at Waddell & Associates in Memphis. “There were too many opportunities for reputational risk.”
But it might have been worth it.
Zachary Milam, vice president of Mercer Capital, a valuation and consulting firm for financial advisors based in Memphis, said:
Loans processed by banks, led by JP Morgan, but mostly by financial technology companies, were for labor costs and normal business expenses such as interest on mortgages on corporate real estate. They did not expressly aim to help independent advisors deal with the sharp market downturn that has materialized as the pandemic has unfolded.
Still, says Max Schatzow, co-founder and partner of RIA Lawyers in Ewing, New Jersey, “Where the hell is the economy going? Where are the markets going? Where are the revenues going? I didn’t even know,” he said.
He said advisors earning commissions from assets under management that plummeted when the S&P 500 plunged 34% from February to August 2020 had to “scale back or cancel their growth plans”, so they took out PPP loans. He argued that the use was justified.
A study by the Journal of Banking & Finance found that some investment firms say they will retain more jobs than the salaries disclosed on Form ADV. The investigation found that investment firms were free to “exaggerate their labor cost requirements” and “may have facilitated fraud in the PPP loan procurement process.”
The SEC, which oversees registered investment advisors, advised independent advisors in April 2020 that they, as fiduciaries, Obligation to notify customers about PPP loans or other financial assistance if it “constitutes material facts relating to an advisory relationship with a client.”
The company requires disclosure to regulators on Wall Street’s registration form with regulators regarding the payment of salaries to employees performing advisory functions and the firm’s ability to meet its contractual obligations to clients. I asked a question about