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An Introduction to Modern Prudent Fiduciary Investing

Contributor Scott Simon outlines the three critical duties of fiduciaries.

Sometimes fiduciaries and other groups ask me to give them an introduction to modern prudent fiduciary investing. Despite the nature of these sometimes ponderous, pontificating presentations--not to mention my inherent lawyerly drone--most in the audience are (or at least appear to be) genuinely interested in what I have to say. So I thought that a wider audience of advisors reading my column would have an interest as well.

Modern prudent fiduciary investing--not any official term, but simply my own--is derived from two works that have been introduced within the last quarter century. The first is the 1992 Restatement (Third) of Trusts (Restatement), which I think of as the bible of trust investment law in America today. It’s a massive, multivolume legal treatise that examines the common law and state statutes in the field of trust law as it exists in the 50 states and restates them as broad legal principles. (The “common law” is judge-made law based on custom and judicial precedent in contrast to statutory law, which results from passage of a bill by a state legislature and its enactment into law as a statute upon a governor’s signature.) The Restatement provides many examples of prudent and imprudent investing, with accompanying analyses and discussions.

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