Altruist Financial Advisors LLC
"No other protection is wanting, provided you are under the guidance of prudence."
Altruist follows the Prudent Investor Rule. The Prudent Investor Rule is a legal doctrine which provides guidance to investment managers regarding the standards for managing an investment portfolio in a legally satisfactory manner.
Basically, prudent investing amounts to a process which one follows. If the process followed in making investment decisions is prudent (based on what is known and not known at that time), then the decisions being made are prudent, regardless of subsequent results. Example: It would be imprudent to "invest" one's money in a lottery. The relative prudence of the decision isn't affected by the fact that the investor may have subsequently won the lottery. If she won the lottery, then she got lucky and had a spectacularly good result despite a spectacularly imprudent "investing" decision. But winning the lottery doesn't justify the imprudence of playing the lottery in the first place. Indeed, while we'd all like to win the lottery, it simply isn't prudent to try to do so.
Investing prudently is a process, not a performance guarantee.
In 1994, the National Conference of Commissioners on Uniform State Laws developed The Uniform Prudent Investor Act, based on the Prudent Investor Rule. The Uniform Prudent Investor Act has been passed as law, with various modifications, in most states. An example of this law, with modifications, is the Michigan Prudent Investor Rule. Here are some comments thereon.
A related model statute, The Uniform Principal and Income Act, was developed by NCCUSL in 2000. Here are some comments thereon. An example of this law, with modifications, is the Michigan Uniform Principal and Income Act. Here are some comments thereon. This law provides guidance on classifying assets in a trust as either principle or income, for the purposes of distribution.
Another related model statute, the Uniform Prudent Management of Institutional Funds Act, was developed by NCCUSL in 2006. Here and here are some comments thereon. An example of this law, with modifications, is the Michigan Uniform Prudent Management of Institutional Funds Act. Here are some comments thereon. This law provides guidance on the management of charitable endowments.
The Prudent Investor Rule traces its history back to an earlier doctrine known as the Prudent Man Rule. That legal standard was established in 1830 by a Massachusetts Court decision (Harvard College v. Amory, 9 Pick. (26 Mass.) 446, 461 (1830)):
"All that is required of a trustee to invest is, that he shall conduct himself faithfully and exercise sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested."
The most authoritative useful description of the current Prudent Investor Rule is probably that of the influential American Law Institute (in Restatement of the Law Third, Trusts: Prudent Investor Rule, 1992):
§ 227. General Standard of Prudent Investment
The trustee is under a duty to the beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the trust.
The new rule contains five basic principles (the bold phrases below are taken from Restatement of the Law Third, Trusts: Prudent Investor Rule, 1992):
For more information, see the articles below:
For more guidance on what this means, see here.
For a detailed discussion of surrounding issues, see the Foundation for Fiduciary Studies' Draft of Prudent Investment Practices: A Handbook for Investment Fiduciaries.
This web page contains the current opinions of Eric E. Haas at the time it is written—and such opinions are subject to change without notice. This web page is intended to serve two purposes:
We believe the information provided here to be useful and accurate at the time it is written. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here. Before investing, it is important to consult each prospective investment's prospectus and consider both its risk/return characteristics and its effect on your overall portfolio.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Altruist recommends consultation with a qualified tax adviser, CPA, financial planner, or investment adviser. If you would like to discuss the rationale or support for any particular idea expressed on this web page, feel free to contact us.
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