Prudent Expert Act

AAA

DEFINITION of 'Prudent Expert Act'

A measure contained in section 404(a)(1)(B) of the Employee Retirement Income Security Act (ERISA) that requires the fiduciary of a defined contribution retirement plan to use "care, skill, prudence and diligence", and to act in the same way that someone "familiar with such matters" would act. The "familiar with such matters" language has been interpreted to mean "expert". This language creates an important distinction from the earlier prudent person guideline, in that it holds fiduciaries to a stricter standard.


Also called the "prudent expert rule" or "prudent expert standard".

INVESTOPEDIA EXPLAINS 'Prudent Expert Act'

A fiduciary is someone who is legally responsible for someone else's money, and who is legally required to manage that money in the best interests of its owner. Fiduciary best practices include identifying the client's time horizon, desired return and risk tolerance, choosing asset classes consistent with these guidelines, periodically reviewing investment performance and periodically reevaluating whether fiduciary standards are being met.

RELATED TERMS
  1. Named Fiduciary

    The fiduciary that holds responsibility over a given financial ...
  2. Code Of Ethics

    A guide of principles designed to help professionals conduct ...
  3. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
  4. Fiduciary

    1. A person legally appointed and authorized to hold assets in ...
  5. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
RELATED FAQS
  1. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  2. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  3. What types of investments are allowed in a provident fund?

    Different provident funds have different investment rules and restrictions. The allowable investments in an Indian provident ... Read Full Answer >>
  4. How does a provident fund compare to U.S. Social Security?

    A provident fund shares many attributes of the U.S. Social Security program, including government sponsorship and set contribution ... Read Full Answer >>
  5. How are benefits from a provident fund taxed?

    Not all provident fund benefits are treated equally, even in the same country. Thailand, for instance, has three separate ... Read Full Answer >>
  6. I'm in my 50s. Should I still participate in my company's Roth 401(k)?

    Participating in an employer-sponsored Roth 401(k) program is an excellent way to plan for retirement at any age. The longer ... Read Full Answer >>
Related Articles
  1. Professionals

    Manage Your Clients' Expectations

    You can't control how they react to the market, but you can help them understand the reality of the situation.
  2. Budgeting

    Find The Right Financial Advisor

    Learn how to weed out those who are just out to make a quick buck.
  3. Professionals

    Fiduciary Designations For Financial Advisors

    Attaining the AIF or AIFA could help both you and your clients enjoy a comfortable retirement.
  4. Professionals

    Meeting Your Fiduciary Responsibility

    Being a fiduciary comes with a certain level of responsibility. These four steps will reduce your liability when managing other people's money.
  5. Professionals

    Ethical Issues For Financial Advisors

    Learn what to do when that devil on your shoulder begins to whisper.
  6. Professionals

    How To Deal With (Seriously) Dysfunctional Clients

    Difficult, unreasonable and eccentric people seek financial planners too. Find out how to cope.
  7. Professionals

    An Introduction To Fiduciary Advisors

    Offering personalized solutions in a world of cookie-cutter advice may be your ticket to career perfection.
  8. Fundamental Analysis

    Understanding Modern Portfolio Theory

    Modern portfolio theory describes ways of diversifying assets in a portfolio in order to maximize the expected return given the owner’s risk tolerance.
  9. Investing Basics

    Explaining Idiosyncratic Risk

    Idiosyncratic risk is the risk inherent in a particular investment due to the unique characteristics of that investment.
  10. Retirement

    Millennials: Retire With $1,000,000 --Here's How

    It is possible for Millennials to retire with $1,000,000, if they take the right steps and make the necessary sacrifices now.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!