5.2 The Prudent Investor Rule

In response to the constraints imposed by the evolution of the prudent man standard by judicial decision, the Restatement (Third) of Trusts adopted a revised prudent investor rule.   The stated purpose of the new rule was to reinvigorate the Harvard College standard:

The terms of the prudent investor rule in the new Restatement begin by returning, with modest reformulation, to the essence of the Harvard College dictum in an effort to restore that opinion’s originally intended generality and flexibility.   The terms of the rule then continue in an effort to modernize trust investment law and to make its underlying principles and the relevant financial considerations more readily understandable.   This was intended to discourage a repetition of earlier difficulties and temptations in application and elaboration.

The language of the rule and the accompanying commentary were thus designed to preserve the law’s adaptability.   The mandates of the prudent investor rule were confined to those that seemed essential to:   (i) a meaningful duty of prudence, based on its traditional elements of care, skill and caution; (ii) the protection and implementation of fiduciary goals; and (iii) supplying useful guidance to trustees, their counsel and courts, taking account of the varied needs and objectives of individual trusts and trustees.[1]