SECURITIES BASED LINE OF CREDIT FREQUENTLY ASKED QUESTIONS

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1 SECURITIES BASED LINE OF CREDIT FREQUENTLY ASKED QUESTIONS Helping your clients put the borrowing power of their assets to work for them One of the most overlooked asset-gathering opportunities is when a client is seeking liquidity or a loan to make a large purchase. Rather than sell assets, you can help your clients put the value of their portfolio to work for them with a Securities Based Line of Credit (SBLC). Putting clients existing assets to work by allowing them to borrow against eligible assets in their pledged account(s), an SBLC through Raymond James Bank is an alternative source of liquidity for your clients that keeps their assets where they belong invested and under your management. Inside are answers to the most frequently asked questions about the securities based line of credit and how you can address your client s need for liquidity with this convenient borrowing solution from Raymond James Bank. For more information or to begin the application process for a securities based line of credit, contact your local Raymond James Bank consultant or call Securities Based Lending at

2 ABOUT THE BASICS What is a Securities Based Line of Credit? The Raymond James Securities Based Line of Credit is a flexible line of credit that can be collateralized by one or more Raymond James brokerage accounts (pledged accounts), giving clients access to liquidity at highly competitive pricing. What can my client do with a Securities Based Line of Credit? Clients may use the proceeds for any legal purpose except to purchase or carry securities or to pay off a margin loan. Who issues the Securities Based Line of Credit? Raymond James Bank is the issuer. A separate loan account is established at Raymond James Bank collateralized by nonqualified assets held in a Raymond James brokerage account. A new brokerage account is not needed. How does a client apply for a Securities Based Line of Credit? The SBLC loan application and related forms are available from the Forms Index on RJnet, where they can be downloaded, completed and made ready for client signature. The application and other required documents should be submitted through Service Center. The SBLC Document Wizard is a resource available to you on RJnet that helps you determine what forms are needed for different client scenarios. How long does it take to approve the Securities Based Line of Credit request? Setting up a Securities Based Line of Credit account takes approximately four to six days (from receipt of application in good order to funding). Credit lines involving business entities or those over $2.5 million may require additional time. Loans to individuals over $5MM require financials and may also require additional time. Is there any compensation for a Securities Based Line of Credit? Yes, a 25 basis points controlled asset fee is paid to the financial advisor s grid quarterly. Please note: IAD advisors are not compensated. Is there a term on a Securities Based Line of Credit? No, a Securities Based Line of Credit is open and available as long as clients want, even with a zero balance. ABOUT ACCOUNT INFORMATION Where can I find information about my client s current SBLC? In Client Center, on the Accounts tab and then the sub-tab for Raymond James Bank, you can view: u Available balance u Credit limit of the loan u Interest rate u YTD interest paid u Prior year interest paid u Advances u Payments In Client Center, on the Client Correspondence tab, you can view the following statements: u Raymond James Bank Relationship Summary u Raymond James Bank Securities Based Line of Credit Statement In Client Center, on the Account Attributes page, you can find the Securities Based Line of Credit Report. This report shows you: u Loan balance u Credit limit u Collateral limit u Available to borrow u Amount from collateral call 2

3 SECURITIES BASED LINE OF CREDIT FREQUENTLY ASKED QUESTIONS u Pledged account(s) u Interest rate u Discount rate u Dollar amount of pledged assets needed to reach next interest rate tier u Loan analysis including loan account, symbol, security description, shares, security type, eligible shares, price, market value, eligible collateral, advance rate, collateral limit, call rate and call value Statements are also available for viewing in Client Archives. PLEASE NOTE: If a client had a change of address, please contact Raymond James Bank directly to update your client s account information. How can my clients access information on their SBLC through Investor Access? Under My Accounts, the Summary tab displays the client s account summary. Click on Securities Based Line of Credit to expand options. Here the client can view: u Pledged account(s) u Credit limit u Loan balance u Available to borrow u Current interest rate u YTD interest paid u Prior year interest paid Under My Accounts, the Documents tab displays the client s statements. Under Account Services on the Client Tools tab, clients can choose their method of delivery (paper or online). If clients select e-delivery, they will receive a monthly alerting them when their statement is available for viewing in Investor Access. ABOUT ACCESSING FUNDS How are funds accessed? Funds can be advanced with client-issued checks, cashier s checks, wire transfers and automated clearing house (ACH) transactions. The first funding must be taken via Form 1656 wire transfer, cashier s check or ACH transaction. Funds cannot be deposited into a brokerage account. Is there a minimum advance? The initial advance must be at least $55,000, which must be completed via wire transfer, cashier s check or ACH transaction. Prior to the initial advance, Raymond James Bank performs a client confirmation call. After the initial advance, there is no minimum requirement, and the client will be mailed their Securities Based Line of Credit checkbook, which will arrive in approximately 10 business days. How are advances using checks handled? There are no usage fees for writing checks. The check amount may not exceed the amount available to borrow, must be in U.S. dollar denomination and may not be deposited into a Raymond James brokerage account or any other securities account affiliated with another firm. This is a regulatory restriction as a Securities Based Line of Credit cannot be used for any securities purposes. Copies of original checks can be requested by financial advisors. Advisors can also assist with reordering checks and placing stop payments on checks (fees apply). How are wire transfers handled? Wire transfers can be made to an external account or third-party payees (excluding Raymond James brokerage account or any other securities account affiliated with another firm). The initial advance via wire is free of charge. Subsequent wires may incur a fee. Branch manager and financial advisor or sales assistant sign-off is required on the advance request 3

4 Form 1656 for any third-party wires. Please note: Raymond James Bank performs a client confirmation call prior to sending any funds to borrowers for thirdparty payees. How are ACH transactions handled? ACH payments can be set up as a one-time funding request or as automatically recurring payments to external accounts and third-party payees (excluding brokerage accounts or other securities accounts affiliated with other firms). Please note: Raymond James Bank performs a client confirmation call prior to sending any funds to borrowers for third-party payees. Can a Securities Based Line of Credit be used to pay off a margin balance? No. Paying off a margin loan would be a regulatory violation. Clients are required to sign Form U-1 to comply with Regulation U stating that the loan proceeds will not be used to purchase or carry margin securities, as the Securities Based Line of Credit is a non-purpose loan. ABOUT PLEDGED ACCOUNTS What accounts can be pledged? Most marginable accounts can be pledged, as well as managed accounts. However, Capital Access, retirement, qualified assets, custodian, UTMA and/ or accounts approved for margin borrowing are not eligible to be pledged. Please note: There is no limit on the number of accounts a client can pledge. What is the minimum pledged amount? The market value of the account(s) must be a minimum of $100,000. What limits do pledged accounts have? Buying, selling and trading can be conducted as usual, subject to certain restrictions. Accounts will continue receiving interest and dividends. For more details, see the Securities Based Line of Credit Agreement. Can my client have periodic payments on pledged accounts? Periodic drafts from pledged accounts are not permitted as they would put the firm s collateral at risk. This also applies on loans with zero balances. For more details, see the Securities Based Line of Credit Agreement. Can my clients have Capital Access checkwriting? Pledged accounts may not have the Capital Access checkwriting feature attached, as lending rates are based on the value of assets pledged plus the value of any linked Capital Access accounts. However, clients who have funded their Securities Based Line of Credit for the first time via Form 1656 will receive a Securities Based Lending checkbook from which they are free to write checks on their credit line, up to their available credit limit. Can funds/assets be released from a pledged account? Yes, as long as funds are available. Does my client need to sign a form to release collateral? Clients do not need to sign a form for a release request up to $100,000. This can be submitted directly to the Raymond James credit department for approval. Requests of $100,000 or more must be approved by Raymond James Bank via Form 1650 signed by the client. PLEASE NOTE: As a benefit, loans that do not have an outstanding balance do not require Form 1650 signed by the client if the amount to be withdrawn from any collateral account is $1,000,000 or less. In all cases, the financial advisor is responsible for funds after approval. The advisor is also responsible for notifying the client that any releases of collateral may result in an increase in interest rate if the market value postrelease falls into a different pricing tier. 4

5 SECURITIES BASED LINE OF CREDIT FREQUENTLY ASKED QUESTIONS ABOUT STATEMENTS What will be on the client s brokerage statement? The Primary Pledged Account brokerage statement will include a high-level summary of the Securities Based Line of Credit. All other pledged accounts will be notated as Pledged. Additionally, clients will receive a Raymond James Bank Relationship Summary with their monthly brokerage statement(s) with summary information. Is anything else sent to the client? Yes. A monthly Securities Based Line of Credit Statement will be mailed or sent electronically by Raymond James Bank to the client. This statement features an account summary, payment information, activity details and interest rate information. ABOUT PAYMENTS, RATES AND BORROWING POWER How are payments made? Each month the borrower will receive a statement that includes a payment coupon and a pre-addressed envelope for payment by check. Loan payments are interest-only and due 20 days from the statement closing date found on the monthly statement. If a payment is not received by the due date, the borrower s loan balance will be automatically increased if funds are available. If client does not have any credit line available on which to borrow, a payment must be made or the client may incur a late fee. The borrower will determine when to pay down principal. Payments also can be made by wire transfer, ACH transaction or journal request from Raymond James accounts. Automatic ACH payments from an outside bank account or Raymond James account can be set up using Form How are rates determined? Rates are based on the one-month LIBOR rate plus an applicable percentage. The applicable percentage will be based on the total market value of the client s pledged account(s) plus the net market value of any linked Capital Access account(s) on the last day of the previous month. In general, the higher the market value of these accounts, the lower the interest rate will be. Any change in the applicable percentage will be effective the first day of the following month and will be referenced in the monthly bank and brokerage statements and Investor Access.. Can a client s interest rate be discounted? Yes, the financial advisor may request a discount to a client s posted interest rate. Discounts are shared among the bank, financial advisor and branch and will reduce, or eliminate, compensation to the advisor. Please speak with your branch manager regarding discounting. Please note: IAD does not receive compensation. How is interest accrued? Interest, which is calculated as the LIBOR plus the applicable percentage, is accrued daily and is based on the daily interest rate multiplied by the loan balance. All daily accrued interest is accumulated and posted to the client s account at the end of the statement cycle and will appear on the client s statement as Current Interest Charges. Accounts are variable rate accounts, and the periodic rate may vary. A copy of the client s statement can be found in Client Center as well as Client Archives. 5

6 Is the interest tax deductible? To determine the tax deductibility of interest paid by your client, please consult with the client s tax advisor. Raymond James Bank does not issue a yearend interest statement to the client. However, interest accrued YTD is available on every statement. You may view all client statements in Client Archives. What factors determine the amount available to borrow? Raymond James Bank determines how much can be borrowed based on the value and type of assets pledged. This may fluctuate based on the value of the client s account and the type and marginality of assets in which the account is invested. The amount may also be affected by the credit limit established by the bank, as well as any outstanding loan balances. Unlike margin, the availability on the line of credit does not automatically increase if the securities go up in value. What is the advance rate on each security type? Generally the advance amount is determined by the type of security and the advance rate percentage per the grid on page 7. The security must be eligible for margin, held in street name and not considered concentrated. Please note: Analysts Best Picks and any Raymond James Financial-related securities are ineligible. How are Collateral Calls and advance rate determined? Generally, the percentage is determined by security type per the grid on page 7. This is the maximum loan-to-value ratio before a collateral call or advance rate is created. The percentages may be increased or decreased from time to time at Raymond James Bank s sole discretion and the percentages below should be used as a general guideline. 6

7 SECURITIES BASED LINE OF CREDIT FREQUENTLY ASKED QUESTIONS RATE GRID FOR A RAYMOND JAMES SECURITIES BASED LINE OF CREDIT This grid is meant to be a general guideline. Raymond James Bank reserves the right to change any of the below percentages on a situational basis. Please note: Raymond James Financial stock is not eligible to be used as collateral. TYPE OF COLLATERAL Stock traded on the New York Stock Exchange, Nasdaq and American Stock Exchange and stock of mutual funds ADVANCE RATE PERCENTAGE* CALL PERCENTAGE Open-ended funds, unit investment trusts (UITs) Convertible bonds 65% 75% Exchange traded unit investment trusts and master limited partnerships, REITs, ETP/ETF/ETNs Category 1 only** Cash, money market funds and certificates of deposit U.S. government securities bills, notes and bonds 90% 95% Agency bonds (GNMAs & FNMAs; Freddie Macs) 80% 90% Municipal bonds 80% 85% Corporate bonds and CMOs 70% 75% NOTES: *Percentage of eligible collateral unless otherwise indicated **Category 1 is defined as: u Available to all Raymond James investors (No IQA required) u Equity and fixed income ETPs that track recognizable and transparent indices and generally do not utilize leverage or derivatives u Commodity-based ETPs that purchase and store the physical commodity (e.g., gold, silver or platinum) 7

8 INTERNATIONAL HEADQUARTERS: THE RAYMOND JAMES FINANCIAL CENTER 710 CARILLON PARKWAY // ST. PETERSBURG, FL // // RAYMONDJAMESBANK.COM A Securities Based Line of Credit may not be suitable for all clients. The proceeds from a Securities Based Line of Credit cannot be used to purchase or carry margin securities. Borrowing on securities based lending products and using securities as collateral may involve a high degree of risk. Market conditions can magnify any potential for loss. If the market turns against the client, he or she may be required to deposit additional securities and/or cash in the account(s) or pay down the loan. The securities in the Pledged Account(s) may be sold to meet the Collateral Call, and the firm can sell the client s securities without contacting them. The interest rates charged are determined by the market value of pledged assets and the net value of the client s Capital Access account. Securities Based Line of Credit provided by Raymond James Bank. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, a federally chartered national bank Raymond James Bank 2015 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC RJBK-SBL KM 3/15