
Uniform Prudent Investor Act (UPIA)
The Uniform Prudent Investor Act (UPIA) is a standard that sets out guidelines for trustees to follow when investing trust assets on behalf of a trustor. The Uniform Prudent Investor Act made four main changes to the previous Prudent Man Rule standard: A trust account's entire investment portfolio is considered when determining the prudence of an individual investment. Under the Uniform Prudent Investor Act standard, a fiduciary would not be held liable for individual investment losses so long as the investment was consistent with the overall portfolio or investment objectives. By taking the total portfolio approach and eliminating category restrictions on different types of investments, the Uniform Prudent Investor Act fostered a greater degree of diversification in investment portfolios. The Uniform Prudent Investor Act (UPIA) is a statute that sets out guidelines for trustees to follow when making investments on behalf of others, an update to the Prudent Man Rule.

What Is the Uniform Prudent Investor Act (UPIA)?
The Uniform Prudent Investor Act (UPIA) is a standard that sets out guidelines for trustees to follow when investing trust assets on behalf of a trustor. It also applies to financial professionals who make recommendations or place trades on behalf of clients. It is an update to the former "Prudent Man" standard intended to reflect the changes that have occurred in investment practice since the late 1960s.
Specifically, the Uniform Prudent Investor Act adopts a modern portfolio theory (MPT) and total return approach to the exercise of fiduciary investment and discretion.



Understanding the Uniform Prudent Investor Act (UPIA)
The Uniform Prudent Investor Act was adopted in 1992 by the American Law Institute’s Third Restatement of the Law of Trusts. It was an update to the previously accepted Prudent Man Rule.
By taking the total portfolio approach and eliminating category restrictions on different types of investments, the Uniform Prudent Investor Act fostered a greater degree of diversification in investment portfolios. It also made it possible for trustees to include in their portfolios investments such as derivatives, commodities, and futures. While these investments individually have a relatively higher degree of risk, they could theoretically reduce overall portfolio risk and boost returns when considered in a total portfolio context.
The Prudent Man Rule
The Prudent Man Rule was based on Massachusetts common law written in 1830 and revised in 1959. It stated that a trust fiduciary was required to invest trust assets as a “prudent man” would invest his own assets, with the following in mind:
A prudent investment will not always turn out to be a highly profitable investment; in addition, no one can predict with certainty what will happen with any investment decision.
More recently, the prudent man rule has been renamed the prudent person rule. This set of guidelines can also be applied outside of trustee domains, where it is referred to as the prudent investor rule.
The Uniform Prudent Investor Act’s Updates to the Rule
The Uniform Prudent Investor Act made four main changes to the previous Prudent Man Rule standard:
The Uniform Prudent Investor Act’s most important change was that the standard of prudence would henceforth be applied to any investment in the context of the total portfolio, rather than to individual investments.
Related terms:
Diversification
Diversification is an investment strategy based on the premise that a portfolio with different asset types will perform better than one with few. read more
Fiduciary
A fiduciary is a person or organization that acts on behalf of a person or persons and is legally bound to act solely in their best interests. read more
Investment Objective
An investment objective is a client information form used by asset managers that aids in determining the optimal portfolio mix for the client. read more
Modern Portfolio Theory (MPT)
The modern portfolio theory (MPT) looks at how risk-averse investors can build portfolios to maximize expected return based on a given level of risk. read more
Prudent Investment
A prudent investment refers to the use of financial assets that are suitable for an investor’s goals and objectives. read more
Prudent Investor Rule
The prudent investment rule requires a fiduciary to invest trust assets as if they were her or his own. read more
Prudent-Person Rule
The prudent-person rule is a legal principle that restricts the investment choices of a person managing assets in behalf of another person or people. read more
Speculation & Explanation
Speculation refers to the act of conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain. read more
Suitable (Suitability)
An investment must meet the suitability requirements outlined in FINRA Rule 2111 prior to being recommended by a firm to an investor. read more
Testamentary Trust
A testamentary trust is a legal entity that manages the assets of a deceased person in accordance with instructions in the person's will. read more