Prudent Expert Act


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".

BREAKING DOWN '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.

  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 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. Investing Basics

    5 Ways to Double Your Investment

    So if you want to go double, consider these five classic strategies to help turn your vision into a reality.
  9. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  10. Mutual Funds & ETFs

    4 Mutual Funds Warren Buffet Would Buy

    Learn about four mutual funds Warren Buffett would invest and recommend to his trustee, and discover detailed analysis of these mutual funds.
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  4. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  5. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  6. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
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!