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 advisors to ERISA plans are familiar with the prudent man rule and the requirement for a prudent process, that will be a new concept for IRAs and rollovers, when the rule becomes effective on April 10, 2017.
The prudent man rule, (based on common law) generally instructs that a prudent person is one who exercises the degree of skill, care and diligence that a reasonably prudent person would exercise under the same or similar circumstances.
The Prudent Man Rule requires that fiduciaries act "with care, skill, prudence, and diligence under the circumstances then prevailing.
1998) (indicating that the assumption behind the Prudent Man Rule is that "trust beneficiaries are highly risk averse and therefore prefer to receive a lower expected return in exchange for taking fewer risks").
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.