American Flag

Judge Samuel Putnam: An Early American Contributor to Modern Finance

American Flag

Judge Samuel Putnam, 1830

The Prudent Man Rule

In a case of alleged improper management of a trust account, Judge Samuel Putman presided with a decision that has become known as the Prudent Man Rule, still used today to establish proper guidelines for trustees and other fiduciaries. He stated, "Do what you will, the capital is at hazard. All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, considering the probable income, as well as the probable safety of the capital to be invested." This was one of the first authoritative and clear statements that risk has to be considered along with return.