Bank law's good intentions suspicious

BANKING & FINANCE

June 03, 1994|By David Conn | David Conn,Sun Staff Writer

Among the many bills signed into law last week by Gov. William Donald Schaefer was House Bill 825, known by the banking and investment industry as the "Prudent Investor Rule," which certainly sounds innocuous enough.

The law, which takes effect Oct. 1, lays out broad guidelines defining how fiduciaries should act when investing money for someone else.

The bill calls for investors to act with such motherhood and apple pie values as "reasonable care, skill and caution," "in the best interests of the beneficiaries," and "incur only costs that are reasonable. . . ."

A fiduciary (often a trust company but it can be anyone who declares himself one) manages money or property for another person and is assumed to be trustworthy.

The Maryland Bankers Association, at whose behest it was sponsored, says the bill will benefit the public "by establishing an investment standard for fiduciaries that requires prudence and care but at the same time enables fiduciaries to utilize contemporary investment techniques and to carrying [sic] out reasoned investment policy that fits the unique purposes, circumstances and needs of the beneficiaries.

Hardly seems as if it was necessary to put all that into law.

But here's the kicker. The statute says the fiduciary's investment decisions shall be judged with the caveat that "No specific investment or course of action is, taken alone, prudent or imprudent." And it goes on to say "The fiduciary shall have no liability" for holding or buying any particular asset, as long as the investment is believed to be in the best interests of the beneficiary.

What all this means is that people whose money is managed by someone deemed a fiduciary will have a much harder time winning a lawsuit that alleges their assets were managed poorly.

Bankers, of course, have no problem with that. Under the law, fiduciaries will be judged on the performance of the entire portfolio they manage, rather than each individual trade.

"You could have a very good result, a very good portfolio, and one position could cause a problem for you," notes Brian Topping, who heads Mercantile-Safe Deposit & Trust Co.'s trust department.

Insurer to eye potential AEGON conference

A group of 40 insurance executives gathering at Loyola University late next week will be watched closely by the top ranks of AEGON N.V. The giant Dutch insurer's next leaders are expected to emerge from this group.

The two-week program, dubbed AEGON University, is a first-of-a-kind effort by AEGON, whose U.S. headquarters are in Baltimore, to give its rising executives a refresher course in management, leadership, ethics and values.

"It's people that we think are very high potentials . . . to become leaders in the company," says Don Shepard, the chairman and CEO of AEGON U.S.A. Inc., who also serves on the parent company's executive board.

Equally important is the chance to build personal networks among AEGON executives from around the world, says Mr. Shepard. Along with all the classwork and evening lectures, the group will spend a day touring the Gettysburg battlefield, and will attend a requisite O's game.

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