What the CARES Act Means for Financial Advisors

No industry has been immune to the COVID-19 crisis, and that includes financial advisory firms. 

As Barron’s magazine notes, most financial advisory firms calculate fees as a percentage of clients’ assets under managementThose fees rose as client assets swelled during the stock market’s long bull run, but after the market slipped into a downward spiral in late February, many firms’ client assets shrank, as did advisory fees.” The result could be much lower compensation and cost-cutting because wealth managers’ revenue usually falls two-thirds of the broad market’s drop.  

The biggest expense for registered investment advisors (RIAs) tends to be personnel, and many firms may have been considering laying off employees after the recent market crisisWealthManagement.com writes. Thankfully, the Small Business Administration’s Payroll Protection Program (PPP) helps prevent this by keeping people employed throughout the crisis. The PPP is designed to help retain workers, so the funds can be used only to cover payroll and other daily operating expenses.

The PPP is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law Friday, March 27, 2020. The PPP application opened up Friday, April 3, 2020. Most RIAs qualify for the PPP since it’s available to firms with fewer than 500 employees.  

Here are some key points you should know about the PPP:

  • The program is a $349 billion emergency loan program that provides forgivable loans to small businesses left financially distressed by the pandemic.
  • Those eligible for the program include small businesses, certain nonprofits, veterans’ organizations, self-employed individuals, independent contractors, and other businesses meeting size standards based on their North American Industry Classification System code. 
  • The maximum loan amount is $10 million with a fixed 1% interest rate and maturity of two years. 
  • SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. 
  • The loans will be administered at the local level by a national network of banks and credit unions. 
  • The PPP will be available through June 30, 2020. 
  • Learn more about the PPP here. 

While banks can now process loan applications (since last Friday, April 3), many still aren’t ready to accept loan applications from potential borrowers. 

And while the PPP relaxes some of the normal requirements for applying for SBA loans, RIA firms should make sure to read all the fine print before signing. As you look ahead to the future of your business during these uncertain times, this program can help put you in a solid position to keep operations functioning as usual and continue to deliver the best possible service to your clients.

Want to learn more about the CARES Act and the PPP? Reach out to us today 

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