Max M. Schanzenbach, Northwestern University – Pritzker School of Law, and Robert H. Sitkoff, Harvard Law School, have made available for download their article, “Financial Advisers Can’t Overlook the Prudent Investor Rule.” The abstract reads,

This article calls attention to the Department of Labor’s imposition of the “prudent investor rule” on financial advisers to retirement savers. This article also canvasses the customary role of an investment policy statement in promoting compliance with the prudent investor rule by professional fiduciaries.

In April 2016, the Department of Labor promulgated a rule that imposes on financial advisers to retirement savers “fiduciary” status under the Employee Retirement Income Security Act. The Department reasoned that the fiduciary duty of loyalty was necessary to protect retirement savers from conflicted investment advice. But in addition to a duty of loyalty, ERISA fiduciary status also imposes a duty of care or prudence. And with respect to investment management, the fiduciary standard of care is governed by the “prudent investor rule.” The basic tenets of the prudent investor rule are grounded in modern portfolio theory. In short, the prudent investor rule requires diversification and an overall investment strategy having risk and return objectives reasonably suited to the purpose of the investment account.

Find the link to download here: Financial Advisers Can’t Overlook the Prudent Investor Rule by Max M. Schanzenbach, Robert H. Sitkoff

Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal