Fiduciary Responsibilities of Investmewnt Managers and Trustees

Fiduciary Responsibilities of Investment Managers and Trustees

man rule into theprudent expertstandardof ERISA. Yetlegal interpretations of Thefiduciary responsibili- prudence have lagged adties of trust managers are vances in portfolio theory drawn in the main from and practice.In particular, state law on personal recent empiricalstudies trusts,from case law, from showing that long-terminScott's Law of Trusts and vestment performancedefrom the American Law pends primarilyon asset Institute's Restatement (Sec- allocation policy support ond) of Trusts. Charitable the total portfolio approach organizations and private to measuringprudence.

William G. Droms foundations are subject, respectively,to the Uniform Management of Institutional Funds Act of 1972 (UMIFA) and the regulations under Section 4944 of the Internal Revenue Code. The Employee Retirement Income Security Act of 1974 (ERISA), although it applies specifically to pension fiduciaries, provides a primary source of statutory guidance for all fiduciaries because of the large dollar value of assets invested in pension funds and thefact that the Act representsa codification of trust and common law.

The concept of fiduciary responsibility has a long and distinguished history. Raymond Young and John Lombardcite one early and highly respected authority: A man about to leave on an extended trip called in his three servants. He gave five talents to the first, two to the second, and one to the third. On his return, the traveler asked for an accounting, much as would a modern beneficiary. The first servant said he had invested the money, earned an additional five talents, and presented the ten talents. This fiduciary was praised and rewarded, and given the ten talents back to further invest. The same story was repeated for the servant with two talents. But the third servant said he knew the traveler was risk averse. He didn't want to risk losing the money and so buried it in the ground, kept it safe, and returned...