prudent man rule


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prudent man rule

n. the requirement that a trustee, investment manager of pension funds, treasurer of a city or county, or any fiduciary (a trusted agent) must only invest funds entrusted to him/her as would a person of prudence, i.e. with discretion, care and intelligence. Thus solid "blue chip" securities, secured loans, federally guaranteed mortgages, treasury certificates, and other conservative investments providing a reasonable return are within the prudent man rule. Some states have statutes which list the types of investments allowable under the rule. Unfortunately, the rule is subjective, and some financial managers have put funds into speculative investments to achieve higher rates of return, which has resulted in bankruptcy and disaster as in the case of Orange County, California (1994). (See: fiduciary, trustee)

References in periodicals archive ?
That standard is, in its essence, a combination of the prudent man rule and the duty of loyalty," Reish continued.
While I believe that focused 401(k) advisors understand ERISA's prudent man rule and duty of loyalty, I'm concerned that many advisors don't understand how the best interest standard of care will impact their advice to IRAs (once the new DOL rules apply on April 10, 2017).
On the other hand, traditional and rollover IRAs-and SEPs and SIMPLE IRAs that cover only business owners and their spouses-are not ERISA plans, in which case ERISA's prudent man rule does not apply.
The contemporary application and interpretation of prudent man rule applies to all directors, whether paid or unpaid, and regardless of the legal nature, size or type of business enterprise, its products and its commercial transactions.
The Prudent Man Rule requires that fiduciaries act "with care, skill, prudence, and diligence under the circumstances then prevailing.
Other websites tie the term to ERISA's prudent man rule regarding investing, or they link it to modern portfolio (investment) theory.
51) The Prudent Investor Rule both extends and clarifies the older and outdated Prudent Man Rule, (52) the latter requiring a trustee to act in a prudent and cautious fashion with the overriding purpose to preserve the trust's principal.
Sarbanes-Oxley replaces the Prudent Man rule with strictures that violate our Constitutional freedoms and do little to actually prevent future scandals.
The prudent man rule, however, focuses primarily on prudence in the selection of individual investments.
ERISA was aimed at protecting pension fund holders from the outrageous acts of money managers who flouted the Prudent Man Rule.
Some of the important aspects of ERISA included a revision of the Prudent Man Rule, rules affecting funding, a rule allowing fiduciaries to delegate fiduciary responsibilities, and the requirement that all pension funds develop and maintain an investment policy statement.