- Potential to access the value of your investments to meet borrowing needs.
- Doesn’t have to disrupt your investment strategy.
- Securities-based lines of credit are flexible and relatively easy to establish.
Financial flexibility through borrowing
Have you ever considered harnessing the value of your investment account for borrowing? Securities-based borrowing gives you access to money based on the value of your own securities. 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.
It may provide financial flexibility to help meet your borrowing needs. That depends on the type of investments you own, how much you want to borrow, and for what purpose.
Securities-based loans defined
A securities-based line of credit helps you to meet your liquidity cash needs by unlocking the value of your investments without selling them.
This type of borrowing may be easier to obtain and more flexible 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
- No set-up, non-use, or cancellation fees
- Ability to borrow between 50% to 95% of your eligible assets, depending on the collateral and type of credit you receive
These lines of credit can be used for many purposes. Common uses include:
- Home renovation
- Real estate purchase1
- Expenses such as taxes
- Boat, car, or other luxury purchase
- Business opportunity
You can use a non-purpose securities-based line of credit for 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.2
Borrowing against investments is not without risks
Remember you are pledging securities3 whose value is affected by events outside your control. The risks of securities-based borrowing include:
- Market fluctuations that may cause the value of pledged assets to decline
- A decline in the value of your securities that could result in selling your securities to maintain equity. If the market value of 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 it; otherwise the firm may require the sale of some or all of the pledged securities.
- Wells Fargo Advisors will attempt to notify you 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 as a result of selling securities*
*Wells Fargo Advisors and its affiliates are not tax or legal advisors.
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.
WSJ Prime Rate as of July 28, 2022 = 5.50%
For the WSJ prime rate, please visit: https://www.wsj.com/market-data/bonds/moneyrates.
|Household Assets Under Management||Interest Rate|
|Under $5,000,000||WSJ Prime Rate|
|$5,000,000 and over||WSJ Prime Rate -.50%|
|Margin Debit Balance||Standard Rates|
|$0 to $24,999.99||WSJ Prime Rate + 5.75%|
|$25,000 to $49,999.99||WSJ Prime Rate + 5.25%|
|$50,000 to $99,999.99||WSJ Prime Rate + 4.75%|
|$100,000 to $249,999.999||WSJ Prime Rate + 4.25%|
|$250,000 to $499,999.99||WSJ Prime Rate + 3.75%|
|$500,000 to $999,999.99||WSJ Prime Rate + 3.25%|
|$1 million to $4,999,999.99||WSJ Prime Rate + 2.75%|
|$5 million to $9,999,999.99||WSJ Prime Rate + 2.25%|
|$10 million and up||WSJ Prime Rate + 1.75%|
|Cash Account||WSJ Prime Rate + 5.75%, regardless of debit size or household assets under management|
|Household Assets Under Management||Adjuster|
|$250,000 to $499,999.99||- 0.5%|
|$500,000 to $999,999.99||- 1.00%|
|$1 million to $2,499,999.99||- 1.50%|
|$2,500,000 to $4,999,999.99||- 2.00%|
|$5 million and up||- 2.50%|
1 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. All loans are subject to credit approval. Wells Fargo & Company and its affiliates do not provide tax or legal advice. Please consult your tax or legal advisors to determine how any credit may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.
2 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.
3 Subject to minimum equity requirements.
Priority Credit Line is offered by Wells Fargo Advisors and lending and margin accounts are carried by Wells Fargo Clearing Services, LLC (WFCS).
Wells Fargo Advisors is a trade name used by WFCS and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
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 his or her 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 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. Wells Fargo Advisors and its affiliates are not tax or legal 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 securities-based lines of credit may not be used to purchase additional securities, pay down margin, or for insurance products offered by Wells Fargo affiliates. Securities held in a retirement account cannot be used as collateral to obtain a loan. Securities purchased in the pledge account must meet collateral eligibility requirements.
Wells Fargo Advisors (“WFA”) and its Financial Advisors have a financial incentive to recommend the use of securities-based lending products (“SBLs”) rather than the sale of securities to meet client liquidity needs. Financial Advisors will receive compensation on Priority Credit Line (“PCL”) and other non-purpose SBL from Wells Fargo Bank. Your Financial Advisor’s compensation is based on the outstanding debit balance in your 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 PCL and other SBL products, as well as an incentive to encourage you to maintain a larger debit 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, WFA 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 house 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.
Please read all lines of credit documents carefully. The proceeds from some securities-based lines of credit may not be used to purchase additional securities, pay down margin, or to pay premiums for variable life insurance policies or for insurance products offered by Wells Fargo affiliates, including life, disability, long-term care, personal or commercial property, casualty, and liability insurance products. Securities held in a retirement account cannot be used as collateral to obtain a loan. Securities purchased in the pledge account must meet collateral eligibility requirements. Other account fees, fund expenses, brokerage commissions, and service fees may apply.
- Look into the types of securities-based line of credit options.
- Find out how much you can borrow relative to the value of your investment account.
- Understand the risks associated with pledging securities for the term of the loan.
- Explore current interest rates, the cost to borrow, and the effect on borrowing costs should interest rates rise.