Question

In: Finance

List a few examples or requirements under the Prudent Investor that adhere to investment advisors.

List a few examples or requirements under the Prudent Investor that adhere to investment advisors.

Solutions

Expert Solution

Prudent investor rule sets standards and provides guidelines for managing investment portfolios. While managing investment portfolios, there are some factors which must be considered:

1. Economic conditions.

2. Inflation

3. Deflation.

4. Return from income

5. Capital appreciation

6. Tax consequences.

7. Risk to return ratio

8. Investment strategies.

9. Liquidity

10. Regularity of income

It provides rules for managing investments which requires assesment of investment goals, risk and return analysis and assets diversification.

The advisor can mitigate the risk of liability by following prudent investment practices.

Requirements under the Prudent inveinvestor that adhere to investment advisors:

1. Know standards, laws and trust provisions

2. Diversification of assets to specific risk and return profile of client.

3. Prepare investment policy statement.

4. Use document due deligence.

5. Control and account for investment expenses.

6. Monitor the activities of prudent experts.


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