Investment advisers are required to disclose all material information about their advisory services. At times, the financial well-being of the investment adviser is material if there are factors that might disrupt operations and the ability to service clients. As this pandemic has progressed, the economic impact has become tangible, and it is affecting investment advisers — particularly smaller advisers.

The U.S. Small Business Administration’s Paycheck Protection Program (“PPP”) is being used by many to bolster balance sheets and ensure continued operations. That said, it’s logical for advisers to consider whether and how to disclose this fact to their clients. Accordingly, the SEC has issued some guidance on this topic.

The agency’s “Coronavirus Response FAQs” provides some scenarios on when disclosure may be needed. Essentially, if an adviser requires the PPP loan in order to pay the salaries of employees who provide advisory services or to fulfill contractual obligations, then this fact should be disclosed to clients. If an adviser has applied and received a PPP loan more as a safety net and insurance for an uncertain future, no disclosure is needed.

In other words, disclosure may be needed only if the adviser’s ability to effectively operate is contingent on receiving the assistance.

If an adviser does need to disclose the loan, it must include the nature of the financial situation, the amount of the assistance, and how it would be used. Additionally, any other financial assistance outside of a PPP loan that is crucial to operations may need to be disclosed.

Greyline continues to follow all COVID-19 regulatory action, relief, and guidance.