According to the Prudent Investor Rule, the trustee must:
– adhere to loyalty, impartiality and ________
– maintain overall portfolio risk at a reasonable level
– provide for reasonable diversification of trust investments
– act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents
– be cost conscious when investing
A . commitment
B . none of these answers
C . prudence
D . diversification
E . supervisors
Answer: C
Explanation:
Modern Portfolio Theory dictates that trustees consider a portfolio in its entirety and not just on an investment- by- investment basis.
As a fiduciary, therefore, the trustee must:
– adhere to fundamental fiduciary duties of loyalty, impartiality and prudence.
– maintain overall portfolio risk at a reasonable level
– the trade- off between risk and return is the fiduciary’s central concern.
– provide for reasonable diversification of trust investments.
– act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.
– be cost conscious when investing.
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