How RIA Networks Helped Partner Companies Take Out PPP Loans

Networks such as Dynasty Financial Partners and Fiduciary Network have waded through the turbulent waters of public opinion after regulatory documents revealed that several RIA partners and members took out government-backed coronavirus relief loans.

Many RIAs, with and without capital partners, have seen their income decline as market volatility caused by Covid-19 reduced the amount of money they made through asset under management (AUM) fees.

Some prominent and high-asset borrowers under management have had to fend off critics who argue that Paycheck Protection Program (PPP) loans should go to businesses most directly affected by the pandemic and the resulting foreclosure. Loan recipients under fire from critics retorted that critics were playing “Monday morning quarterback” and reaffirmed that the need was real, or at least could have been.

In an interview with Counselor Center in April, Dynasty CEO Shirl Penney underscored the urgency to “protect” employees at its partner companies and touted Dynasty’s assistance in depositing and securing their PPP loans.

“Among the nearly two dozen companies in the network who applied to us through our OCFO [Outsourced Chief Financial Officer] program, they all got funding in the first wave of loans, which was helpful as they focused on caring for their clients, ”Penney said. “I find it important in these chaotic times to stay constructively busy. “

Given that the funds are earmarked for companies that would otherwise struggle to pay their employees, this may seem odd, especially as the market rally continues as the S&P 500 recouped all of its 2020 losses in early June. Network companies that obtained the loans also reported receiving at least educational and administrative support from their motherships.

As of June 8, at least 11 Dynasty partner companies have reported having taken out PPP loans. According to their Form ADV updates, the $ 814 million Procyon Private Wealth Partner store took $ 320,600, DB Root & Company took $ 307,500, and Aaron Wealth Advisors took $ 96,400. Among the smaller firms, Great Diamond Partners, Source Financial Advisors, Pivotal Planning Group, and High Note Wealth all took just over $ 100,000, while Premia Global Advisors took $ 70,800. Meanwhile, Boulevard Family Wealth, Avestar Capital and Towerpoint Wealth have each taken out loans for undisclosed amounts.

The ADVs of more than two dozen other Dynasty partner companies did not indicate that these companies had requested or received PPP funds. However, Jon Morris, Legal Manager at Dynasty, said there may be other companies that have yet to disclose PPP loans or have determined that they do not have to disclose the loans due to the way they are structured.

Morris said Dynasty’s efforts around PPP loans focused on training advisers on their options and accessing a banking partner – First Home Bank, based in St. Petersburg, Fla., Where Dynasty also has its business. seat.

Dynasty facilitated presentations between the bank and its partner companies as well as with clients of their partner companies, Morris said, adding that approximately 100 clients of Dynasty companies have taken out PPP loans through First Home Bank. Nonetheless, Dynasty left it up to individual companies to decide whether or not to continue with the funding.

“It’s not a one-time decision,” Morris said. “We didn’t make the decisions for anyone. We have made it clear that these are the decisions of the individual advisers.

Meanwhile, Dynasty has a division dedicated to customizing, underwriting and creating capital and loan facilities for its partner companies. RIAs seeking liquidity for acquisitions, succession planning or personal needs have access to Dynasty Capital Strategies.

In early April, Ed Swenson, COO of Dynasty, said about 80% of all new partner companies use Dynasty’s equity or loan programs. About a third of the network had exploited these programs in one way or another, he added.

Several Dynasty companies, including Pittsburgh-based DB Root and Beverly Hills-based Boulevard, said they had not ruled out paying off their PPP loan rather than begging for forgiveness.

The 1% loan

Daniel Wiener, chairman of $ 5.5 billion Adviser Investments, said that even though the intention is to pay off the PPP loan, the advisers are effectively getting loans at 1%. He claimed that “no sane bank” would offer such a loan if it was not backed by taxpayer dollars.

“It may be that Dynasty and its ilk, reprehensible and dishonest as they are, simply see that their member companies can borrow at lower rates than Dynasty could ever offer its own money – or that of its favorite banks.” , Wiener added.

Dynasty was not the only network with companies using PPP loans. Members of the trust network who used the loans included $ 4.9 billion RegentAtlantic, which borrowed $ 1.19 million; and $ 2.7 billion Sand Hill Global Advisors and $ 2 billion Morton Capital Management, which borrowed undisclosed amounts.

“RegentAtlantic, like many other small businesses, faces challenges due to the coronavirus pandemic,” a spokesperson for RegentAtlantic said at the time of the company’s disclosure. “In an abundance of caution and in the absence of clarity on the overall economic impact of the pandemic, RegentAtlantic applied for and received a loan under the PPP.”

Meanwhile, Wiener’s Adviser Investments, which funded its 2011 acquisition of Kobren Insight Management with help from Fiduciary Network, turned down the $ 2.2 million offered under the program, and Wiener has since criticized RIAs. who took the funds.

Karl Heckenberg, managing director of investor RIA Emigrant Partners and the RIA business Fiduciary Network, said his group had organized calls with company executives to “discuss the issues” and sought advice from an outside advisor on the issue. potential impact on business ADVs as well as the loan application process and possibly remission.

“Each company made their own decision as to whether it made sense to apply for the PPP loans, and I would estimate that over 50% either chose not to apply or changed their mind after applying in the second round, as Adviser Investments has publicly discussed, “Heckenberg mentioned.

Emigrant Partners, like sister company Fiduciary Network, only takes minority and uncontrolled stakes in its RIAs, but is perhaps less passive in the traditional sense. Although Emigrant plays no role in the day-to-day operations of its AIRs, it helps finance acquisitions and recruitment of its businesses, offers a range of in-house practice management experts, and provides access to a trust company.

A bill promulgated on June 5 makes it easier to justify the cancellation of PPP loans. The funds can now be used over 24 weeks, instead of eight, and are now forgivable as long as 60% of the money is spent on payroll, up from 75%. The repayment period for PPP loans has also been extended to five years, compared to two previously.

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