John Langbein Awarded the Frankel Fiduciary Prize

John Langbein accepting the Frankel Prize from Deborah DeMott, a professor of law at Duke University and a member of the selection committee.

John Langbein may not be a familiar name to financial advisors, but he has had a significant and lasting impact on our profession. On September 16, he was awarded the Frankel Fiduciary Prize.

Langbein is an emeritus professor of law at Yale, specializing in trust law. To appreciate the impact of his work, consider that, prior to the 1990s, bank trust portfolios were routinely allocated to what were then considered safe assets – bonds. Langbein, through his scholarship and changes he spearheaded in trust law, transformed this practice to use modern portfolio theory (MPT).

Langbein provided the intellectual foundation for the prudent investor rule to use MPT in fiduciary investments. He introduced this concept in 1992, and by 2006 it was adopted by every state. Data shows that this led to greater allocations to stocks starting in 1992 by banks, based on pension and charitable endowment holdings.

“The asset allocation of trillions of fiduciary assets has been altered in a beneficial way due to the scholarship and legislation led by Langbein,” said Robert H. Sitkoff, a professor of law at Harvard Law School, who also spoke at the presentation.

The Institute for the Fiduciary Standard established the Frankel Fiduciary Prize to honor individuals who advance fiduciary principles. The Frankel Fiduciary Prize is awarded annually to a person who has made significant contributions to the preservation and advancement of fiduciary principles in public life.

The prize is named in honor of Tamar Frankel, a pioneer in fiduciary law scholarship and advocacy for fiduciary principles and a professor emeritus of law at Boston University.

Langbein delivered a talk about the two core principles of trust law, how those principles are routinely compromised and what can be done to prevent abuse.

The first principle of trust law is the “duty of loyalty” – to administer a trust solely in the interests of the beneficiary. A trustee cannot take into account their own self-interest when making decisions about a trust.