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 ?
The adviser must adhere to the DOL's impartial conduct standards, including the best interest standard of care, which is a combination of the prudent man rule and the duty of loyalty.
That standard is, in its essence, a combination of the prudent man rule and the duty of loyalty," Reish continued.
When selecting and monitoring investment options, a plan’s committee members are held to a special fiduciary standard often referred to as the prudent man rule. This means committee members must act with the care and skill that a prudent person would if acting in a similar capacity and being familiar with such matters.
Generally stated, the prudent man rule requires that an advisor engage in a prudent process which takes into account qualitative and quantitative issues related to investments, the needs of the investor, the purpose of IRAs (that is, as retirement vehicles), and so on.
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.
Under the Uniform Prudent Investor Act of 1994, the prudent investor rule replaced the prudent person rule (the prudent person rule is also known as the prudent man rule).
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").
The Sarbanes-Oxley legislation sweeps away decades of jurisprudence based on Delaware law and standards for corporate responsibility such as the Prudent Man rule. In 1830, Judge Samuel Putnam set down a general canon for corporate behavior: "Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income." Sarbanes-Oxley replaces the Prudent Man rule with strictures that violate our Constitutional freedoms and do little to actually prevent future scandals.
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