Ritholtz Wealth Management has repaid its PPP loan. Can this quell the backlash from Twitter?
On May 25, financial advisor Josh Brown – or as he’s called on #fintwit, @courtier reformed – click publish on what would become one of his most controversial blog posts.
Entitled “Under pressure,” the post opened with the lyrics to David Bowie’s song, “Five Years”: “The reporter cried and told us the Earth was really dying, he cried so much his face was wet, so I knew he wasn’t lying. ” Brown, CEO of Ritholtz Wealth Management, did not write the post to comment on the markets or share his thoughts on the coronavirus pandemic, which he had done almost daily since the start of the crisis.
Instead, he announced that the company RIA, which manages nearly $ 1.3 billion by its latest ADV form, had received a loan from JPMorgan Chase & Co. under the US government Paycheque Protection Program. The emergency program, known as PPP, was designed to cover two and a half months of payroll for small businesses during the pandemic.
When industry insiders criticized the move, Brown responded via a blog, only to receive more criticism, which led to another blog post. Today, just over a month later, Brown and Ritholtz Wealth announced that the company has paid off the PPP loan in full, taking out a new line of credit that is not covered by the government program.
So what exactly happened in the meantime? The short answer: Twitter.
Shortly after Brown’s post, his 1.1 million Twitter followers reacted, wondering why a wealth consulting firm that can do most of its work online (as Brown explained in his article) would need a P3 loan with built-in remission.
Daniel Wiener, chairman and co-founder of Newton, Massachusetts, Adviser Investments, was among those who voiced concerns. He had already written a play for Citywire advise RIAs to avoid taking out PPP loans, in part because asset managers may appear hypocritical after advising their own clients to set aside “rainy days” funds.
May 28, Wiener tweeted: “At the time the #ppploans were available, the mkt was -23%, up 11% from the March low. We call it a #bearmarket. It happens. Really. @ReformedBroker needed a bailout? ”
While some praised Brown for being transparent on the matter, others pointed out the irony of applying for a P3 loan. The company’s namesake, Barry Ritholtz, had published a book criticizing the bailouts in 2009 in direct response to the global financial crisis.
The wealth consulting firm was not the only one to benefit from a PPP loan. ADV forms show that Sequoia investments, Ulrich Investment Advisors, and Larson Financial Group, which all manage over $ 1 billion, also received them.
What made Ritholtz Wealth Management stand out was that Brown and Ritholtz both used the internet to advocate for the movement more than once, before deciding to pay off the loan in full a month later.
The cleanup began two days after Brown’s initial announcement. Brown posted a second blog post on May 27, calling the PPP loan debt, “no government loan or bailout”. Brown wrote that “the benefit of taking it as a ‘payroll protection” loan is the lower interest rate, the six month grace period before the start of repayments (October) and the possibility of requesting a discount later if necessary “.
According to Small business management, PPP loans have an interest rate of 1% and banks cannot charge fees on these loans. If a loan recipient uses most of the money to cover payroll and keeps workers employed, they can request a loan forgiveness.
On May 28, the Reformed Broker blog published another article, “Explaining how bank loans work”. The post was linked to a clip of Brown appearing on Stephanie Ruhle’s MSNBC program and acknowledged criticism against the company.
“Like an idiot, I assumed that everyone understood this and that people could read English before making up their minds and saying their mouths,” the blog said. “I also assumed that a business owner who took on debt to keep their operations and employees running smoothly would be considered heroic.”
On June 1, Ritholtz himself finally intervened. He shared an article on his own blog, The Big Picture, in an effort to dispel “confusion and misinformation” about the loan. He wrote that he wanted to “distinguish between a bank loan and a bailout”. Unlike the banks that caused the 2008 financial crisis – as he wrote in his book “Bailout Nation” – he said his business did not cause the coronavirus crisis.
“This is a loan, not a bailout,” Ritholtz said in the blog. “We do not intend to request cancellation of our loan. We don’t believe in unearned financial deals or free money. Our loan will be fully repaid on time in October 2022. ”
A few weeks later, the company paid off the loan. Brown shared in a June 30 blog post that Ritholtz Wealth Management has repaid “every penny, plus interest” and replaced the loan with a traditional line of credit from JPMorgan.
The post was self-reflective: Brown admitted he had learned a lot of lessons during the pandemic and wanted to share them with his blog readers.
Brown revealed that he and Wiener spoke on the phone about the loan. According to Brown, Wiener shared the wisdom that “companies like ours would have been better off using standard lines of credit and already have pre-existing banking relationships for times like this.”
As for Twitter reviews?
“As much as people value your transparency, they appreciate being able to stomp on your head as soon as you make a decision they don’t agree with,” Brown wrote. “Being a top person in your industry only magnifies the effect of that. “