Fiduciary Duty Under Law
Are you aware of your Fiduciary Duty Under Law when it comes to diversification?
Diversification is fundamental to prudent investing. Fiduciaries typically manage systematic or market risk but may not be aware that to avoid breach of fiduciary duty liability, fiduciaries must be able to prove that uncompensated risk in their portfolios was reduced on a “reasonable” basis through diversification during their stewardship. Here’s why:
Failure to diversify on a reasonable basis… to reduce uncompensated risk is… a violation of both the [fiduciary] duty of caution and the [fiduciary] duties of care & skill.” Source: Commentary to Section 227, Restatement 3rd of Trusts
Know the fiduciary law: Click to read excerpts regarding risk, diversification, and reducing uncompensated risk from RESTATEMENT VOLUME 8 1992, ADMINISTRATION OF TRUST, PRUDENT INVESTOR RULE, Section 227Section 227.