The first half of the year was historic for wealth managers. The suddenness of the Covid-19 pandemic led to the fastest-ever bear market and then dominos began toppling in the industry.
As equity markets fell, so did revenue at wealth management firms, which typically charge clients an assets-based fee of 1%, often billed quarterly. Plummeting fee revenue could mean drastically lower compensation and cost-cutting at wealth managers, especially those without fat profit margins. Revenue typically falls two-thirds of the broader market’s decline.
As a result, some consulting and public relations firms felt the squeeze — or feared it enough — to seek out forgivable debt. At least five public relations firms that work with wealth management companies applied for and received millions of dollars in loans through the Payroll Protection Program (PPP), according to data released Monday by the Small Business Administration, which ran the loan program.
FiComm Partners, a public relations firm with 15 employees split between Los Angeles and New York City, applied for a PPP loan shortly after the program began April 3. Some of its roughly 30 wealth management clients, albeit a small percentage of them, had already told the company they intended to pause their spending, or promised to pay FiComm but didn’t know when they would be able to.
Meanwhile, the number of Covid-19 cases continued to rise and employees (if they were still employed) were racing to adjust to working from home, potentially indefinitely.
“I made the choice very early on that I needed to apply because there was a tremendous amount of uncertainty,” Megan Carpenter, co-founder and CEO of FiComm, told RIA Intel.
FiComm received between $150,000 and $350,000 and used it to bridge the gap between the agency suddenly having less money coming in, and one that wouldn’t just survive but could thrive in the future. The company pivoted parts of its business for a radically different world where everyone was working remotely and created a new video education product to sell to customers. But even though work began on those early into the health crisis, those offerings were months away from being ready to pitch and for clients to use.
“If we didn’t have those funds we would have been forced to make shortsighted, short-term decisions with uncertainty. You know that you have a blind spot,” Carpenter said. “I’m grateful [for the PPP loan] because when you’re under stress, sometimes you don’t make the right decisions. Sometimes you do, but sometimes you don’t.”
Carpenter said FiComm is currently healthy and growing and she attributed that to the loan. Without it, and the necessary staff cuts or other changes that might have occurred, the company would not have been able to invest in itself and pivot like it has, she said.
“I feel as though there is sort of a stigma in the industry around RIAs that have taken PPP [loans]. And, we’re not an RIA firm, but I hope other businesses out there don’t feel like they need to be ashamed or backtrack on why they took PPP in the first place,” said Carpenter, who said both other wealth managers and the news media fanned that flame.
More than 660,000 companies received a Payroll Protection Program (PPP) loan larger than $150,000, but a small number of them were private wealth managers. Still, there were 1,436 recipients were "investment advice" firms (although that number could be off base). At least one advisory firm, Ritholtz Wealth Management, which manages nearly $1.3 billion, received a PPP loan but has already given the back the funds after criticism by industry peers.
Gregory CFA, one of the 50 largest PR firms in the U.S. according to its website, received a loan amount between $1 million and $2 million to retain 76 jobs, according to the SBA. Without it, the firm would not have been able to keep all of its employees. "Anyone that knows me understands how committed we are and will remain to protect our staff's livelihood and the robust health care coverage we provide our employees, which now more than ever, seems to be the best benefit we could provide," Gregory FCA President Joe Anthony told RIA Intel.
Like at FiComm, some clients of Gregory FCA suspended or reduced their relationship with the company this spring. Without the PPP loan, the public relations firm would have been in a cash crunch. But, also like FiComm, Gregory FCA has evolved its services; one client that halved their budget in March is already back to paying their full retainer and the business is back to growing.
"The PPP program did for us exactly what it was designed to do — help an otherwise vibrant small business navigate through an exogenous event to allow continuity of employment," Anthony said.
In January, Copley Equity Partners, a private Boston-based investment firm for a family office, purchased a minority stake in Gregory CFA.
Other public relations firms sent a statement about the PPP loans they received or declined to comment.
The Neibart Group, a New York City-based public relations firm that works with Charles Schwab, received between $150,000 and $350,000 to help it maintain 14 jobs. In a statement to RIA Intel, The Neibart Group said: “We applied for and received a PPP loan because our agency — like every small business — faces a highly uncertain economic and business environment. The loan has allowed us to ensure job security for our entire staff through the remainder of the year no matter what happens as a result of the pandemic.”
Denver-based Communications Strategy Group, a public relations firm that represents independent RIAs, accepted a loan of between $350,000 and $1 million to retain 24 jobs, according to the SBA. Communications Strategy Group, or CSG, declined to comment on its loan.
Prosek Partners, a public relations firm focused on financial services companies, received a PPP loan for an amount between $2 million and $5 million.
