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 ?
The review considered the basis for the interpretation of the Prudent Person Rule, legal and regulatory frameworks, information gathered for assessment, assessment methods and supervisory actions taken.
The IORP Directive therefore requires these institutions to adhere to the Prudent Person Rule and lists a limited number of investment rules that must be respected by all IORPs.
With its focus on minimizing risk, the prudent person rule forces trustees to adopt conservative fixed-income approaches to investing trust assets.
Each of the Systems Board of Control, therefore, have full power, through each Systems secretary-treasurer, to invest and reinvest System funds in accordance with the Prudent Person Rule: with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
In 1996, the Committee worked with a state representative to change Public Act 55 to incorporate the prudent person rule. This action would give more discretion to fiduciaries, thus allowing the city to increase its equity holdings to the 70 percent target.
It still wanted to pursue the prudent person rule or at least get the law changed to permit equity holdings of 70 percent.
The Board is responsible for developing the Investment Policy Statement, with the assistance of the Investment Advisor, consistent with the "prudent person rule," as set forth by the Employee Retirement Income Security Act of 1974 ("ERISA"), which requires that a fiduciary act with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.