When it comes to managing trusts and investment portfolios, the way fiduciaries make decisions can have long-lasting impacts—on both returns and legal outcomes. While Australia follows its own robust trustee laws, there’s plenty to learn from the Uniform Prudent Investor Act (UPIA), a benchmark piece of legislation from the United States that’s influenced global investment standards since the 1990s. As regulatory scrutiny on prudent investment rises in 2025, understanding UPIA principles can help Australian trustees, SMSF members, and professional investors stay ahead of the curve.
UPIA: A Modern Take on Prudent Investing
The UPIA was introduced in the US in 1994 to update and clarify how fiduciaries—like trustees—should invest assets. Its core message is clear: the investment process should focus on the entire portfolio and outcomes over time, not just individual asset choices. This was a shift from older rules that prohibited certain investments outright or demanded extreme caution regardless of the beneficiary’s needs or modern markets.
- Portfolio approach: UPIA recognises that risk and return are linked, and that diversification is essential.
- No blanket bans: Instead of blacklisting asset types, UPIA requires consideration of suitability for the trust’s purposes and beneficiaries.
- Ongoing monitoring: Fiduciaries must continuously review investments—not just set and forget.
In the US, these principles have become the gold standard for trusts, endowments, and public funds. They align closely with modern portfolio theory and best practice financial advice—ideas that have global relevance, including in Australia.
Australian Context: Trust Law and SMSFs in 2025
Australia’s trust law is historically based on the ‘prudent person’ rule, and the Superannuation Industry (Supervision) Act 1993 (SIS Act) sets out obligations for SMSF trustees. However, as the financial landscape evolves, there’s pressure to clarify what “prudence” means, especially as Australians hold more wealth in trusts and SMSFs than ever before.
Recent 2025 regulatory updates from the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) have focused on:
- Ensuring SMSF investment strategies are tailored and documented, including explicit consideration of diversification and liquidity
- Increased scrutiny of “one asset” SMSFs (e.g. those holding only real estate or crypto)
- Updated guidance on risk management for family trusts and charitable funds
These changes reflect many of the UPIA’s core ideas, suggesting that Australia is moving toward a more explicit, outcome-focused approach to prudent investment. For example, the ATO’s 2025 compliance roadmap places higher expectations on trustees to show ongoing, evidence-based decision-making—mirroring UPIA’s insistence on process over product.
Practical Lessons for Australian Trustees and Investors
Whether you’re running an SMSF, managing a family trust, or advising clients, the UPIA’s influence can be felt in several ways:
- Document your process: Keep detailed records of how investment decisions are made, the risks considered, and how the portfolio aligns with the trust’s objectives.
- Embrace diversification: Avoid concentrated bets. Regulators expect a spread of assets appropriate to the beneficiaries’ needs and risk profile.
- Review regularly: Markets change, as do personal circumstances. Revisit investment strategies at least annually—or when there are major life or market events.
- Consider professional advice: The UPIA encourages fiduciaries to seek expert input when needed, and Australian regulators are increasingly supportive of this stance, especially for complex portfolios.
By adopting these habits, Australian trustees and investors can strengthen their compliance posture, improve outcomes for beneficiaries, and reduce legal risks—no matter how regulations continue to evolve.
The Global Shift Toward Prudent Processes
As investing becomes more complex and asset classes proliferate, the spirit of the UPIA is more relevant than ever—even outside the US. Its focus on prudent process, not just product selection, is echoed in Australia’s 2025 compliance landscape and global fiduciary standards. For those responsible for other people’s money, understanding and applying these principles isn’t just good practice—it’s essential for navigating a future of greater scrutiny and higher expectations.
