Investing and Managing Trusts Under the New Prudent Investor Rule: A Guide for Trustees, Investment Advisors, and Lawyers.

• Author: Greifer, Nicholas
• Position: Review

Train, John and Melfe, Thomas Boston, Massachusetts: Harvard Business School Press, 1999. (282 pages) Investing and Managing Trusts Under the New Prudent Investor Rule is a straightforward explanation of the complex, evolving legal environment that trustees--including pension fund trustees--must operate in. It succeeds in presenting the past and current state of trust law, which shapes the general legal contours for pension fund administrators. The book will appeal to trustees, investment managers, and legal advisers, just as the title of the book asserts it will.

The book has a number of strengths. First and foremost, it is clearly written and explains the legal jargon that is used among trust professionals. Terms such as principal invasion, beneficiary, and testamentary are clearly defined. Furthermore, it develops a useful comparison between the old prudent-person rule and the new prudent-investor standard that is taking its place. It compares each of the legal standards along a number of dimensions, such as the delegation of trustee duties, risk management, and diversification.

An additional strength is the book's organizational scheme, which moves logically from general issues to more specific concerns. Chapter 1, "Trusts and Trustees" provides background information about common characteristics of trusts (including pension trusts), historical origins, legal parties to a trust (trustees, trustors/grantors, and beneficiaries), and the multiple varieties of trusts. It also summarizes the basic duties of a trustee, such as exercising care, skill, and caution (e.g., when investing assets held in trust). Chapter 2, "Prudence in Perspective," shows the evolution of law in defining prudence, beginning with the well-known Harvard v. Amory decision that established the prudent-person rule in 1830. With that as backdrop, the principles of the new Prudent Investor Law (as found in the American Law Institute's 1992 Restatement of the Third Law) is introduced to readers, followed by a model state law, the Uniform Prudent Investor Act, put forth by the National Conference of Commissioners on Un iform State Laws.

The appendices provide useful references. For example, Appendix 6 lists detailed information on whether each state has adopted the model act and the extent to which it incorporates the model law's provisions. For example, Florida and Illinois have adopted fundamental aspects of the model law, such as a) an emphasis on risk/return concepts...