Information Obtained in a Fiduciary Capacity
Quick Answer
The FINRA fiduciary-information requirement prohibits a member firm that obtains information about the ownership of securities in a fiduciary capacity (such as paying agent, transfer agent, or trustee) from using that information to solicit purchases, sales, or exchanges. The only exception: solicitation at the request and on behalf of the issuer is permitted (e.g., a tender offer or proxy solicitation conducted by the issuer).
A firm that acts as a transfer agent sees holder lists and beneficial-owner data that no retail competitor can access. The fiduciary-information prohibition prevents the firm from monetizing that data through its retail brokerage division.
The Rule
A member who, in the capacity of paying agent, transfer agent, trustee, or any similar fiduciary capacity, has received information about the ownership of securities shall not use that information to solicit purchases, sales, or exchanges.
The prohibited capacities include:
- Paying agent (firm that disburses dividends, interest, or principal on behalf of the issuer)
- Transfer agent (firm that maintains the issuer's record of shareholders and processes ownership changes)
- Trustee (firm acting under a bond indenture or trust agreement)
- Any similar fiduciary capacity (proxy solicitor on behalf of the issuer, escrow agent, dividend reinvestment plan administrator)
The information protected (ownership-of-securities data obtained in a fiduciary capacity):
- Identity of the security holders
- Quantity of securities held
- Account-level ownership data not available to the public
The Issuer-Solicitation Exception
Solicitation at the request and on behalf of the issuer is permitted. Examples:
- A tender-offer solicitation conducted by the issuer (the firm contacts holders to encourage tender)
- A proxy-vote solicitation conducted by the issuer in advance of a shareholder meeting
- A rights-offering solicitation conducted by the issuer
The fiduciary firm acts as the issuer's agent in these contexts; the issuer is the principal directing the use of its own holder data.
The Use-Based Test
The fiduciary-information prohibition turns on the use of fiduciary-derived information, not its acquisition. The information may have been lawfully obtained in the fiduciary capacity. The violation is using it for a non-issuer solicitation purpose.
| Activity | Fiduciary Capacity | Solicitation | Violates the prohibition? |
|---|---|---|---|
| Firm acts as transfer agent for Issuer Y; retail division warm-calls Customer X about selling Y shares | Transfer agent | Retail brokerage's own solicitation | YES |
| Firm acts as paying agent for Issuer Y; retail division reaches out to Customer X to recommend Y bonds | Paying agent | Retail brokerage's own solicitation | YES |
| Firm acts as transfer agent for Issuer Y; firm contacts Customer X to tender Y shares in Issuer Y's tender offer | Transfer agent | At the request of the issuer | NO (exception applies) |
| Firm has Customer X as a retail brokerage client; retail division calls Customer X about Issuer Y | Not a fiduciary | Retail brokerage's own solicitation | NO (The fiduciary-information prohibition not triggered) |
Think of it this way: The fiduciary hat and the retail-broker hat have to stay separate. If the firm is wearing the fiduciary hat (transfer agent), it cannot pass the holder list across the hallway to the retail desk. The only time it can solicit those holders is when the issuer asks it to.
Exam Tip: Gotchas
- The fiduciary-information prohibition triggers on the USE of fiduciary information, not its receipt. A firm that lawfully obtains a holder list as transfer agent still violates the fiduciary-information prohibition if it later uses that list for retail solicitation. The lawful acquisition does not authorize the unrelated use.
- The issuer-solicitation exception requires the issuer to be the principal. A firm cannot solicit on its own initiative and claim "the issuer would benefit." The issuer must direct the solicitation.