Prudent-Person Rule

AAA

DEFINITION of 'Prudent-Person Rule'

A legal maxim restricting the discretion in a client's account to investments that a prudent person seeking reasonable income and preservation of capital might buy for his or her own portfolio.

Also called the "prudent man rule".

BREAKING DOWN 'Prudent-Person Rule'

This rule is intended to protect investors using the services of an investment advisor from shady, risky, or otherwise poor investments, such as penny stocks.

RELATED TERMS
  1. Prudent Investment

    Generally, any use of financial assets that is suitable for the ...
  2. Fiduciary Fraud

    Illegal practices committed by financial institutions and financial ...
  3. Respondeat Superior

    A legal concept in which a company and the company's management ...
  4. Uniform Prudent Investor Act - ...

    An updated trust investment law that reflects the changes that ...
  5. Advisor

    1. The person or company responsible for making investments on ...
  6. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
Related Articles
  1. Investing News

    The Evolution Of Money Management

    We look at the development of the money management profession and how it impacts professional money managers today.
  2. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  3. Investing Basics

    The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless.
  4. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  5. Investing News

    Mexican Energy, Telecom Reforms Please Foreign Investors

    Two years into his first term, Mexican President Enrique Peña Nieto is following through on radical campaign promises he made to Mexican citizens for sweeping multi-industry reform.
  6. Investing

    Top Cities Where Airbnb Is Legal Or Illegal

    Thinking of subletting your apartment on Airbnb? Make sure that you meet your city's regulations first.
  7. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
  8. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
RELATED FAQS
  1. Under what circumstances would I benefit from a high net worth insurance policy?

    A high-net-worth insurance policy is specifically tailored to suit the needs of high-net-worth individuals. It is specifically ... Read Full Answer >>
  2. When is litigation better than mediation in a high net worth divorce case?

    Typically, litigation is better than mediation in high-net-worth divorce cases for two major situations – when there are ... Read Full Answer >>
  3. What is the difference between fee-only advisors and fee-based advisors?

    “Fee-only” and “fee-based” sound similar, but there are important differences between these types of financial advisers. ... Read Full Answer >>
  4. Who are Morningstar's (MORN) main competitors?

    Morningstar, Inc. (MORN) is a leading provider of financial information via Internet, software and print-based products to ... Read Full Answer >>
  5. Who are Thomson-Reuters (TRI) main competitors?

    Thomson Reuters (TRI) is the worldwide market leader in financial data with a broad service range that includes publishing ... Read Full Answer >>
  6. How can you calculate your cash budget in Excel?

    Calculating a cash budget in Excel is best completed by dividing your budget into inflows and outflows. Excel makes it extremely ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
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!