Lessons of the PPP Program for Advisors

The year 2020 has been rocked by Biblical-scale events—from floods and swarms of locusts to our modern plague, the novel coronavirus. The virus caused wide-ranging damage to financial advisors’ practices, including reduced revenues from assets under management that were hit hard in the February-March market meltdown, work-from-home orders that forced offices to go virtual, and the many illnesses and deaths that affected clients, staffers and advisors alike.

As a leading business lender, Live Oak Bank has been on the forefront of federal financial rescue efforts for small businesses, most important of which has been the Payroll Protection Program, better known as PPP. The bank has extended more than $1.7 billion* of these forgivable, SBA-backed loans, saving more than 200,000 jobs nationwide. In fact, Live Oak has extended more than 740 PPP loans* to financial advisors alone. As our loan officers struggled to keep up with the crush of applications, in a race to get them approved and closed before funding ran out, we learned some important lessons about business continuity that would apply to any urgent situation.

Prepare, Prepare, Prepare

The advisors who succeeded in getting loans approved, for all their individuality, had several traits in common. They were prepared for emergencies, had all their business paperwork in order and readily accessed by more than one person, and had strong ties with capable accountants and attorneys who were on call to assist. These are business practices that everyone can benefit from, especially when emergencies arise. And since one never knows precisely when emergencies will arrive—whether that means hurricanes, power outages or pandemics—it’s valuable to have these practices in place, and well-rehearsed by staff, at all times. Here are some ideas that every advisor can use to strengthen his or her own business, for any occasion.

1) Your business is your most important client.

Think about all the things you do to keep your clients on track to achieve their financial and life goals, whether that means preparing a financial plan, reminding them about updating necessary paperwork, and coordinating with estate planners, CPAs and attorneys, as well as tending to their investment and insurance needs—that’s a lot! Is your business as well served as your clients? Those advisors who had the easiest time securing loans had focused on their business long before a public health crisis sent the economy and markets into a tailspin, and their staff home to work remotely. They didn’t have to scramble—or at least not much.

Just about every advisor has heard the exhortations by now to treat their practice more like a business. The pandemic proved how important this is—those advisors who had business plans, continuity plans, up-to-date technology and a well-trained staff could continue working, even if they and their clients all had to stay home. They could apply for the loans they needed and get the money. Running the business of financial advice is a practice that paid off, big time, under the stress of COVID-19. As we emerge from this crisis, the value of good business habits will continue to pay off.

2) Continuity plan. Make it, practice it, update it.

Although FINRA requires every advisor to have a continuity plan, most plans are pretty rudimentary, and rely extensively on a broker-dealer or custodian for follow-through. But is that really appropriate? A strong continuity plan will take into account those times you don’t want to hand over the practice—a disaster plan rather than an endgame. It provides remote access to business records; a communications plan for clients, staff, vendors and strategic partners; and a chain of trusted employees who are authorized to be a point of contact if the principals are not available. Then you need to schedule periodic “fire drills” to work out any possible kinks in the plan and update it to reflect changes in the staff or structure of your firm.

Here’s an example: one advisor we worked with was diagnosed with COVID-19. Even sending a text to a client would exhaust him. Thankfully, he had organized and digitized his business papers and deputized a trusted employee to deploy them in his place. She was able to access the company records, fill out the necessary forms and sign them while she worked from home—and we were able to lend to the business through PPP.

3) Documents matter much more than you’d like to think.

One of the most frustrating aspects of the PPP program—for advisors and bankers alike—was that it required filling out a lot of forms and furnishing very specific business filings. When you’re dealing with financing, particularly government financing, details really matter. The Feds want exactly what they want. There are rules and laws. If you don’t have exactly what the government wants, talk to your loan officer before you send in a substitute that most likely won’t be accepted. Save everybody some time, especially yourself.

Many advisors had not digitized their business forms nor kept them up to date. As a result, three out of four applicants had to redo their loan forms multiple times, taking up precious time and, in some cases, missing loan deadlines. Some advisors, for example, had taken on new partners but not updated their organizational documents to reflect the change in ownership. Other advisors had fictitious name registrations (in other words, a DBA) that had expired. These slip-ups made it impossible for them to qualify for a PPP loan. In fact, they could very likely derail any loan application, or set it back for the many weeks it would take to update the state filings.

This is a great time to make sure that your firm’s papers are all up-to-date and digitized. While you’re at it, work with your CPA and attorney to make sure that the entity structure of the firm is appropriate as well. For instance, as your business has evolved, you may want to consider transitioning from an LLC or S-corp to a conventional corporation. The conditions under which you would change your entity structure is a worthwhile conversation to have with your CPA, before you actually need to do it.

4) Make sure your own advisors are up to snuff.

The PPP program was a test for the advisors’ own advisors. Those whose CPAs and attorneys were available, informed and well organized were most likely to succeed at getting loans. The best CPAs were able to provide documents, fill in blanks and answer questions about entity structure when needed—and that could make the difference. They were also staying on top of SBA rules that were constantly evolving during the program.

If your advisors were not on top of the issues, now might be the time to shop for new ones.

5) Remote technology is a new essential.

The COVID-19 crisis is not the first disaster to separate people from their traditional office spaces and work habits. Nor will it be the last. Those advisors who had invested in remote technology and virtual meeting capabilities were able to continue serving clients and barely miss a beat.

According to a global survey of 342 financial advisors, by Kate Holmes, CFP and Jen McKay, director of Linktank, a South-Africa-based financial technology consultancy, almost 70% of advisors said they remained “fully operational” during the global lockdown, with 18% of those advisors responding, additionally, that they were “busier than usual.” In addition, 26% reported that it had been “really easy” to transition to a remote workforce and fully virtual practice. The survey results were discussed by Kate Holmes in her podcast, entitled “Innovative Advice.”

This ease of transition to a virtual working environment may change the financial services world in interesting ways. Do advisors—in particular, solo practitioners and partners in smaller practices—really need to carry the expense of renting or buying commercial space, and traveling to meet with distant clients? Can they expand geographically without friction? Will end clients be comfortable talking to an advisor they’ve never met in the physical world? Will clients need more protection against fraud and abuse in a virtual world?

Forward-thinking advisors have been virtualizing their practices for several years, to enhance both efficiency and flexibility. Now, that habit is paying off, and the trend may well accelerate in the years to come.

At Live Oak Bank, the lending process is almost completely virtual. Borrowers can securely submit business documents online and communicate with loan officers virtually, which makes the entire application process efficient and more convenient. Of course, at some point they will meet with a banker: SBA regulations require that Live Oak inspect the business, as does common sense. Nevertheless, the bank operates nationally with only a handful of offices.

As the nation continues to emerge from the COVID-19 pandemic, we will surely learn more about what business practices are most productive. But we have already figured out some of the best practices for business continuity, and this particular crisis proved their value. Sadly, our world is never completely free of disaster. The best thing we can do is prepare, so we can be our most resilient. Treating your practice as a living business and respecting its needs is the most effective thing an advisor can do to be ready for the future, no matter what it entails. At Live Oak Bank, we are committed to helping our clients, if they’re willing, to be ready and able.

*Sourced from internal data