Securities-Based Borrowing

Have you ever considered harnessing the value of your investment account for borrowing? Securities-based borrowing may provide access to greater liquidity through a line of credit collateralized by your eligible investments.

Securities-based borrowing has special risks and is not appropriate for all investors. Please read the “borrowing against investments is not without risks” section that follows.

A securities-based line of credit helps you to meet your liquidity needs by unlocking the value of your investments without selling them.

This type of borrowing may be more flexible and easier to establish than other choices. It depends on whether you have sufficient eligible securities to use as collateral.

Some of the advantages of securities-based borrowing include:

• Access to cash when you need it, potentially avoiding capital gains taxes from selling securities¹
• Typically lower rates than other forms of credit such as credit cards
• No set-up, non-use, or cancellation fees
• Ability to borrow up to 50-95% of your eligible asset value, depending on the collateral type

These lines of credit can be used for many purposes. Common uses include:

• Tax payments
• Real estate financing²
• Debt consolidation
• Education expenses
• Business financing³
• Luxury purchases such as a boat, jewelry, or fine art

You can use a non-purpose securities-based line of credit, such as the Wells Fargo Bank Priority Credit Line, offered by Wells Fargo Bank, N.A. in partnership with Wells Fargo Advisors, for nearly any purpose. Note: A Wells Fargo Bank Priority Credit Line cannot be used to purchase or carry margin stock or pay down a margin account debit. A margin account is the only securities-based line of credit you may use to purchase securities.⁴

Remember you are pledging securities⁴ whose value is affected by events outside your control. The risks of securities-based borrowing include:

• Market fluctuations may cause the value of your pledged assets to decline, which could result in a maintenance call that requires you to sell your pledged securities to maintain equity. Maintenance calls may also result if Wells Fargo Advisors or Wells Fargo Bank, N.A. changes the required levels of equity.
  • If the market value of your pledged securities declines below required levels, you may be required to pay down your line of credit or pledge additional eligible securities in order to maintain the required equity; otherwise Wells Fargo may require the sale of some or all of the pledged securities.
  • Wells Fargo Advisors or Wells Fargo Bank N.A., on behalf of WFA, will attempt to notify clients of maintenance calls but is not required to do so. Clients are not entitled to choose which securities in their accounts are sold.
• Adverse tax consequences may occur when selling securities due to a maintenance call

Securities-based borrowing options available to clients with eligible Wells Fargo Advisors account assets include:

• Wells Fargo Bank Priority Credit Line
• Priority Credit Line
• Margin

Wells Fargo Bank Priority Credit Line interest rates are based clients’ Wells Fargo Advisors household assets under management and the Secured Overnight Financing Rate (SOFR), which is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York publishes SOFR each business day at 8:00am ET. The Wells Fargo Bank Priority Credit Line uses the SOFR rate that is published generally two business days prior to each date the credit line interest accrues. Rates are available at www.newyorkfed.org/markets/reference-rates/sofr.

The minimum initial borrowing power for the Wells Fargo Bank Priority Credit Line is $75,000. Refer to Related Information for about securities-based lending products, including Priority Credit Line and Margin interest rates.

Your financial advisor can help you take an objective look at your full financial picture, including whether securities-based borrowing may help you meet your liquidity needs.

¹ Wells Fargo Advisors and its affiliates are not tax or legal advisors.

² Financing real estate with a securities-based line of credit carries risk and may not be appropriate for your needs. A complete assessment of your circumstances is needed to help you determine which type of loan provides the best fit.

³ For Wells Fargo Bank Priority Credit Line, certain restrictions apply to entity borrowers including sole proprietorships and irrevocable trust borrowers. For details, refer to the Wells Fargo Bank Priority Credit Line Agreement and Account Terms and Conditions delivered with your loan documents, or ask your financial advisor for a copy of the Agreement.

⁴ Margin borrowing may not be appropriate for all investors. When you use margin, you are subject to a high degree of risk. Market conditions can magnify any potential for loss. The value of the securities you hold in your account, which will fluctuate, must be maintained above a minimum value in order for the loan to remain in good standing. If it is not, you will be required to deposit additional securities and/or cash in the account or securities in the account may be sold. Clients are not entitled to choose which securities in their accounts are sold. The sale of their pledged securities may cause clients to suffer adverse tax consequences. Clients should discuss the tax implications of pledging securities as collateral with their tax advisors. An increase in interest rates will affect the overall cost of borrowing. Wells Fargo Advisors and its affiliates are not tax or legal advisors. Margin strategies are not appropriate for retirement accounts. Please carefully review the margin agreement, which explains the terms and conditions of the margin account, including how the interest on the loan is calculated.

Securities-based lending has special risks and is not appropriate for everyone. If the market value of a client’s pledged securities declines below required levels, the client may be required to pay down the line of credit or pledge additional eligible securities in order to maintain it, or the lender may require the sale of some or all of the client’s securities. For Wells Fargo Bank Priority Credit Line, Wells Fargo Advisors, on behalf of Wells Fargo Bank, N.A., will attempt to notify clients of maintenance calls but is not required to do so. For Priority Credit Line, Wells Fargo Advisors will attempt to notify clients of maintenance calls but is not required to do so. Clients are not entitled to choose which securities in their accounts are sold. The sale of their securities may cause clients to suffer adverse tax consequences. Clients should discuss the tax implications of pledging securities as collateral with their tax advisors. An increase in interest rates will affect the overall cost of borrowing. All securities and accounts are subject to eligibility requirements. Clients should read all lines of credit documents carefully. The proceeds from the Wells Fargo Bank Priority Credit Line may not be used to purchase or carry margin stock or pay down a margin account debit. Margin stock includes any equity security registered on a national or over-the-counter securities trading exchange, any debt security convertible into a margin stock, and most mutual funds. The proceeds from the Priority Credit Line may not be used to purchase additional securities, pay down a margin account debit, or for insurance products offered by Wells Fargo affiliates. Securities held in a retirement account cannot be used as collateral to obtain a securities-based loan. Securities in a Wells Fargo Bank Priority Credit Line or Priority Credit Line collateral account must meet collateral eligibility requirements.

There are conflicts of interest when Wells Fargo Advisors recommends that you use a loan secured by your Wells Fargo Advisors account assets as collateral. Wells Fargo Advisors and its financial advisors have a financial incentive to recommend the use of securities-based lending products rather than selling securities to meet client liquidity needs. Financial advisors will receive compensation on the outstanding loan balance in your Wells Fargo Bank Priority Credit Line or Priority Credit Line account. In addition, your financial advisor’s compensation will be reduced if your interest rate is discounted below a certain level. This creates an incentive for financial advisors to recommend Wells Fargo Bank Priority Credit Line, Priority Credit Line and other securities-based lending products, such as Margin, as well as an incentive to encourage you to maintain a larger loan balance and to discourage interest rate discounts below a certain level. The interest you pay for the loan is separate from, and in addition to, other fees you may pay related to the investments used to secure the loan; such as ongoing investment advisory fees (wrap fees) and fees for investments such as mutual funds and exchange traded funds, for which Wells Fargo Advisors and/or our affiliates receive administrative or management fees or other compensation. Specifically, Wells Fargo benefits if you draw down on your loan to meet liquidity needs rather than sell securities or other investments, which would reduce our compensation. When assets are liquidated pursuant to a maintenance call or demands for repayment, Wells Fargo Advisors and your financial advisor also will benefit if assets that do not have ongoing fees (such as securities in brokerage accounts) are liquidated prior to, or instead of, assets that provide additional fees or revenues to us (such as assets in an investment advisory account). Further, different types of securities have higher release rates than others, which can create a financial incentive for your financial advisor to recommend products, or manage the account, in order to maximize the amount of the loan.

Wells Fargo Bank, N.A. has a lien on the account assets that are used as collateral for the Wells Fargo Bank Priority Credit Line. Wells Fargo Advisors has a lien on the account assets that are used as collateral for Priority Credit Line accounts. We will act to protect ourselves as lenders in connection with the loan and this may be contrary to your interests and/or investment objectives. This lien also creates a conflict of interest with respect to the recommendations your financial advisor makes to you. For example, your financial advisor may recommend that you allocate your investments to your account with a lien rather than to another account without such a lien. Also, your financial advisor may recommend an investment solely to minimize the risk of loss with respect to the collateral.

Wealth & Investment Management offers financial products and services through bank and brokerage affiliates of Wells Fargo & Company. Wells Fargo Bank Priority Credit Lines are offered by Wells Fargo Bank. N.A. as the lender, in partnership with Wells Fargo Advisors as agent, servicer and intermediary holding the collateral accounts. Priority Credit Lines and Margin are provided by Wells Fargo Advisors and carried by Wells Fargo Clearing Services, LLC, as the lender. Wells Fargo Bank, N.A. (member FDIC) is a banking affiliate of Wells Fargo & Company. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.