See: Fiduciary. See: Prudent Person Rule.
Being prudent just means being respectful, careful, measured...you get it.
In this case, we're talking about people who act as trustees for estates. In other words, if you happen to find yourself the trustee for a huuuuge portfolio, and it's your job to invest/manage that money on behalf of a beneficiary (that's a big sticking point, by the way; it's the only reason trusts are made in the first place), this rule says that you cannot invest the money into your own imaginary company you just filed on Legalzoom.com, nor can you invest it in dodo bird futures. Because...they've been dead for years, and there is no such thing as dodo bird futures.
So yes, this act says, "If you are a trustee, and you act in a willfully stupid manner, you can get in big trouble."
The end.
Related or Semi-related Video
Finance: What is an Accredited Investor?9 Views
Finance a la Shmoop. What is an accredited investor. Well the difference
between an accredited college and an unaccredited college, can be like you
know the difference between Princeton, and the school of Feel Good Energy, that
your great Aunt Bertha, set up in her garage last year. Yeah different kind of [woman dancing in garage with disco ball]
college. Well accredited investors work on a
similar idea. A bunch of someone's have come along and agreed that accredited
investors, have a bunch of qualifications. In other words they're legit. So
accredited investors are simply investors, who qualify to do a certain
investment. Usually accredited means, that they have credit, or assets, or wampum, or
knowledge, like intellectual capital, instead of financial capital, or along with
both. Which means that they're big boys and big girls, who are able to invest a
large amount of money, in a risky venture. Officially they're investors who have an
income of at least $200,000 for the past two years, three hundred thousand for [checklist for investors on chalkboard]
joint accredited investors, like married people or partners, or have a net worth
of at least a million bucks individually, or jointly, or our executives, partners, or
directors of the entity issuing those securities. Meaning raising the dough
itself. Institutional investors, such as mutual funds, hedge funds, and pension
funds, also fit the bill. Additionally entities can be considered
accredited, but their threshold is 5 million bucks in assets. By the way if [man talking on lawn]
all the owners of an entity, like a law firm or something like that, are
accredited, well then the entity is considered accredited
as well. So yeah they're accredited investors. Not to be confused with a
credited investor, who is really excited to have a small part in a movie. [guy in movie theater]
Up Next
What does it mean to have fiduciary obligation? To have a fiduciary obligation means that a third party has been given the trust and responsibility...
What are Prudent Investor Rule Standards, the Know Your Client Rule, and unsuitable recommendations?
What is an Affiliated Person or Affiliated Investor? An affiliated person is known as an insider in the financial world. These are the people who h...