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 50-90% 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 financing
• Luxury purchases such as a boat, jewelry, or fine art

You can use a non-purpose securities-based line of credit, such as a Priority Credit Line, for nearly any purpose except to purchase, carry, or trade securities; refinance or repay margin loans; or repay any other loan used for securities purchases. A margin account is the only securities-based line of credit you may use to purchase securities.³ For more information about margin accounts including interest rates, see the Margin Disclosure Statement under Related Information.

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 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 the firm may require the sale of some or all of the pledged securities.
  • 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.
• Adverse tax consequences may occur when selling securities due to a maintenance call

Priority Credit Line interest rates are based on the Wall Street Journal (WSJ) Prime Rate and clients’ WFA household assets under management. The Wall Street Journal Prime Rate as published in The Wall Street Journal is a standard financial index used by banks in setting rates on many consumer loans. For the current WSJ Prime Rate, please visit www.wsj.com/market-data/bonds/moneyrates.

See Related Information for Margin account details.

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 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.

⁴ Subject to minimum equity requirements.

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. Wells Fargo Advisors (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. 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 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 Priority Credit Line collateral account must meet collateral eligibility requirements.

There are conflicts of interest when WFA recommends that you use a loan secured by your WFA account assets as collateral. WFA and its financial advisors have a financial incentive to recommend the use of securities-based lending (SBL) products rather than selling securities to meet client liquidity needs. Financial advisors will receive compensation on the outstanding loan balance in your 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 Priority Credit Line and other SBL 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 ETFs, for which WFA 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, WFA 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.

WFA has a lien on the account assets that are used as collateral for Priority Credit Line accounts. We will act to protect ourselves as the lender 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.

Priority Credit Lines 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.

• Look into the types of securities-based line of credit options.
• Find out how much you can borrow relative to the value of your eligible account investments.
• Understand the risks associated with pledging securities.
• Explore current interest rates, the cost to borrow, and the effect on borrowing costs should interest rates rise.