prudent man rule

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Prudent Man Rule

A legal rule requiring investment advisers to only make investments for their clients' discretionary accounts that a "prudent person" would make. This means that investment advisers operating discretionary accounts are not allowed to make investments they believe will lose money for the client. It does not require that the investment adviser always make correct decisions; it merely requires him/her to make decisions that will be generally accepted as sound for someone of average intelligence. The rule has its origins in an 1830 court decision in Massachusetts, stating that trustees must manage the affairs of others as if they were managing "their own affairs." See also: Suitability rules, Twisting.

prudent man rule

A federal and state regulation requiring trustees and portfolio managers to make financial decisions in the manner of a prudent man, that is, with intelligence and discretion. The prudent man rule requires care in the selection of investments but does not limit investment alternatives. See also investment-grade, legal list.

Prudent man rule.

The prudent man rule is the basic standard a fiduciary, who is responsible for other people's money, must meet.

It mandates acting as a thoughtful and careful person would, given a particular set of circumstances. A trustee, for example, observes the prudent man rule by preserving a trust's assets for its beneficiaries.

The prudent man rule has sometimes been described as a defensive approach to money management, putting greater emphasis on preservation than on growth. The newer prudent investor rule differs by putting greater emphasis on achieving a reasonable rate of return and by delegating decision-making to investment professionals.

References in periodicals archive ?
Knowledge, experience, and practices in the modern investment world demonstrate that many prohibitions under the traditional prudent man rule are unwarranted and likely to be counterproductive, inhibiting the exercise of sound judgment by skilled fiduciaries and creating risks of unjustified liability for all trustees.
Prudent Man and Prudent Investor Rules--The Prudent Man Rule was developed through years of analysis dating back to 1830.
Known as the prudent man rule, it requires a trustee to "observe how men of prudence.
Vesting requirements take up two pages, minimum funding standards, two pages, and the prudent man rule, three pages.
George Putnam was the great-great-grandson of Samuel Putnam, a Massachusetts Supreme Judicial Court Justice, who established the Prudent Man Rule, a legal foundation for responsible money management.