While there has been a good deal of shaming of large registered investment advisor (RIA) firms that took Paycheck Protection Protection loans during the Covid-19 crisis, Ritholtz Wealth Management CEO Josh Brown defended his firm’s loan as a prudent move to help maintain continuity for clients and staff.

The New York City-based firm, which has $1.3 billion in assets, is among a number of billion-dollar RIAs that are now disclosing their PPP loans on updated Form ADV. The form must be filed with the Securities and Exchange Commission and disclosed to investors.

“We have a loan from our bank. We have to pay it back,” Brown told Financial Advisor magazine. “It’s not a forgiven loan. We haven’t applied for forgiveness. Nobody has. You need eight weeks to go by to apply for forgiveness. We have not and we don’t intend to. We just have a low interest-rate loan from our bank. There’s no government bailout, no taxpayer money involved. We owe money to our bank. It’s not very complex,” the CNBC commentator said.

He argued the PPP loan was no different than a regular bank loan. "It’s nobody’s business how a firm choses to finance itself," he said. "Why is this different than Blackstone telling their firms to draw down lines of credit or an RIA going to the bank for a loan?"

Brown co-founded Ritholtz Wealth Management with wealth manager and financial columnist Barry Ritholtz.

Brown said taking the loan was a prudent move in mid-March, when business owners didn't know how bad the stock market or economy would get and predictions from health agencies and the White House estimated millions would die from the coronavirus.

Brown, who declined to specify the firm’s loan amount, said the firm is using 90% of the money right now to pay benefits and payroll to employees and the other 10% for rent.

“Yes, assets took a hit. They did in the first quarter, but that’s not the reason we took the loan. The reason we went to the bank is you don’t know how long the lockdown is going to go on for and how bad the recessions will get. The world looks very different in June than in March. States are reopening and their economies seems to be bouncing back, but 4.5 million businesses took loans,” Brown said.

Criticism of large RIAs that took PPP loans centered on the fact that, unlike small retailers, restaurants and even private-pay physicians’ offices, which are dependent on daily cash flows that completely dried up when they were shuttered during the pandemic’s height, RIAs’ assets and the fees they charge clients remained relatively steady. Some have argued that, as financial professionals, big RIAs should be sophisticated enough to prepare for inevitable bear markets.

Daniel Wiener, chairman and co-founder of Adviser Investments, a $5.5 billion RIA and a critic of RIAs that take PPP loans, called such firms “weak business managers or simply immoral” in trade press reports.

Weiner argued that the RIA business model should be able to accommodate both bull and bear markets. “Taking a government bailout just because it’s easy to get is immoral and unethical. If the business model is so broken they feel they need a government backstop and don’t have other sources of capital such as bank lines of credit already established, these are not viable businesses and shouldn’t be propped up in the first place,” Weiner said.

Crestone Asset Management, a Colorado-based firm with about $2.9 billion in assets under management, received a PPP loan for $1 million, according to the firm’s updated ADV. IPG Investment Advisors, a firm with about $2 billion in AUM based out of San Diego, received PPP loan of $443,100, according to its updated ADV. 

Brown argued that Ritholtz’s PPP loan was simply smart business. “It’s my partner and I who signed for the loan. We said let’s transfer the uncertainty from our employees and put it on ourselves. The benefit of the PPP loan over a line of credit is that the bank gives you six months to begin payments on the PPP loan. Our first payment is in October. So we have a low-interest rate loan. ... Where it gets complex is where firms apply for forgiveness, meaning they don’t pay back a loan. I don’t believe that many advisors in this country are applying for forgiveness."

Brown also noted there is still $138 billion sitting in the PPP stimulus program. “Originally it appeared there was a shortage of funds, but 50% of all applications were duplicates made by businesses that applied at multiple banks,” Brown said.

The loans, which are eligible to companies with fewer than 500 employees, can be used for payroll, as well as certain other expenses, including mortgage interest, rent and utilities. The loan can be forgiven if the company taking the loan uses 75% of it toward payroll in the first eight weeks after it’s been dispersed, provided employees don’t suffer a 25% drop in pay and if the company’s employee head count is the same as of June 30.

As for applying for forgiveness, “I can’t speak for anyone else, but we have no interest in that,” Brown reiterated. “We are doing everything we can to give customers’ peace of mind and create continuity for employees.”