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").
Generalizations were articulated and efforts were made to provide guidance to trustees, with the result that over time the prudent man rule lost mulch of its generality and adaptability as applied in most states.
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.
See generally BEVIS LONGSTRETH, MODERN INVESTMENT MANAGEMENT AND THE PRUDENT MAN RULE (1986); Harvey E.
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.
Interpretation of the prudent man rule gradually narrowed.
Vesting requirements take up two pages, minimum funding standards, two pages, and the prudent man rule
, three pages.
The "best interest" standard is a combination of ERISA's prudent man rule and duty of loyalty.
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.