Prudent Investor Rule

A vast majority of states have passed legislation with major revisions to the Prudent Investor Rule.

A summary of these are:

  • Modern Portfolio Theory (MPT) is adopted as the standard by which fiduciaries invest;
  • May of 1992 American Law Institute (ALI) Third Restatement of the Prudent Investor Rule recognizes:
    • Little or negative payoff when fiduciaries and other investors try to apply expertise, investigation and diligence in efforts to "beat the market", particularly after research and transaction costs;
    • Little correlation between fund managers' earlier successes and their ability to produce above-market returns in subsequent periods.
  • Fiduciaries can avoid liability by exercising reasonable skill and care in making a delegation to an agent that will be held to the same standards as the fiduciary;