Written by 
Edited by 
Edited by 
Reviewed by 
Fiduciary advisors are required to act in the best interests of their clients at all times, while fully disclosing potential conflicts of interest. The Employee Retirement Income Security Act (ERISA), which outlines the rules for employee benefit plans, distinguishes between two types of fiduciary professionals: 3(21) fiduciaries, who are investment advisors, and 3(38) fiduciaries, who are investment managers. Each one plays an important, but unique, role in the administration of workplace benefit plans.
SmartAsset’s Advisor Marketing Platform offers financial advisors services like client lead generation, automated marketing and more. Learn about SmartAsset AMP today.
What Is a 3(21) Fiduciary?
A 3(21) fiduciary is an investment advisor who gives recommendations to a plan sponsor or investment committee but does not have final authority over the plan’s investment lineup. Instead, this advisor serves in a co-fiduciary capacity and is compensated for providing guidance.
A plan may use a 3(21) advisor to help create or update its investment policy statement. This statement explains the plan’s investment options and the procedures used to evaluate and monitor them over time. If certain investments no longer fit the plan’s objectives, a 3(21) advisor may recommend alternatives for the sponsor to consider.
A 3(21) advisor may also participate in investment review meetings, evaluate the plan menu and suggest changes that could benefit participants. However, the advisor cannot implement those changes independently. The plan sponsor decides whether to accept the recommendations and remains responsible if the plan does not satisfy ERISA requirements.
Client Acquisition Simplified: For RIAs
- Ideal for RIAs looking to scale.
- Validated referrals to help build your pipeline efficiently.
- Save time + optimize your close rate with high-touch, pre-built campaigns.
CFP®, CEO
Joe Anderson
Pure Financial Advisors
We have seen a remarkable return on investment and comparatively low client acquisition costs even as we’ve multiplied our spend over the years.
Pure Financial Advisors reports $1B in new AUM from SmartAsset investor referrals.
What Is a 3(38) Fiduciary?
A 3(38) fiduciary is an investment manager whose duties and abilities span a broader scope. Specifically, a 3(38) fiduciary has the authority to make changes to the plan’s investment choices.
In terms of what else a 3(38) fiduciary does, their duties are similar to those of a 3(21) fiduciary. They can review the plan’s investments, monitor them and report back to the plan sponsor. The biggest difference is that a 3(38) fiduciary can go a step further and change the plan investments.
By law, 3(38) fiduciaries must be banks, insurance companies or registered investment advisers (RIAs). An RIA may register with federal or state regulatory agencies, depending on the amount of assets they have under management. While a 3(38) fiduciary has significant discretion in managing plan investments, the plan sponsor is still responsible for overseeing the fiduciary’s actions.
Become a Top Financial Advisor
Referrals and market gains aren't enough. Grow with the all-in-one advisor marketing platform.
3(21) vs. 3(38) Fiduciary Key Differences
The main difference between a 3(21) and 3(38) fiduciary is that the former offers investment advice while the latter can offer advice and implement it through plan changes. Employee benefit plans may choose to hire one or both to share fiduciary duties. Here’s a recap of each one’s key features, side by side.
| 3(21) Fiduciary | 3(38) Fiduciary |
|---|---|
| Acts as an investment advisor | Acts as an investment manager |
| Authority is limited to investment recommendations | Authority extends to choosing plan investments |
| Plan sponsor has final say over plan investments | Fiduciary has final say over plan investments |
| Plan sponsor assumes liability | Fiduciary assumes liability |
A plan’s decision on whether to choose a 3(21) fiduciary vs. 3(38) fiduciary often hinges on the size of the plan, number of enrolled employees and the level of control the sponsor would like to retain over investment decision-making. Plan sponsors may also base their decision in part on the liability aspect, as some sponsors may prefer to transfer liability to a 3(38) fiduciary.
Should You Position Yourself as a 3(21) or 3(38) Fiduciary?
For advisors building a retirement plan practice, the choice between 3(21) and 3(38) fiduciary services is not just technical. It also shapes how you sell your value to plan sponsors.
A 3(21) model may fit advisors who want to lead the investment process without taking full control of it. You can help employers review the plan menu, document investment decisions and identify changes that may be needed, while the sponsor retains final authority. This can work well with employers that have an engaged investment committee and want an advisor to guide the process.
On the other hand, a 3(38) model may be more compelling for employers that want to offload investment oversight. In this role, you are not just making recommendations. You’re selecting, monitoring and replacing plan investments. That can be a stronger selling point with business owners, HR teams or committees that lack the time or expertise to manage the lineup themselves.
The tradeoff is that 3(38) services require more than a good investment philosophy. Advisors need a repeatable due diligence process, clear documentation, ongoing monitoring and a compliance framework that supports discretionary decision-making.
For many advisors, the right answer depends on the type of plan sponsor they want to serve. If your target clients want collaboration, 3(21) may be easier to position. If they want delegation and fewer investment decisions on their plate, 3(38) may create a clearer value proposition.
How to Become an Investment Advisor vs. Investment Manager
If you’re interested in pursuing a career in the retirement plan advisory space, it helps to know what you can expect. When hiring 3(21) and 3(38) fiduciaries, plan sponsors may have a specific checklist of things they look for in candidates.
For instance, investment advisors may need to have:
- Five or more years of experience in a qualified retirement plan.
- Series 6, 7, 65 or 66 licenses.
- A bachelor’s degree in finance, accounting or a related field.
- Hard and soft financial advisor skills, including communication skills and solid attention to detail.
If you’re interested in taking on a 3(38) fiduciary role, you’d first need to become an investment advisory representative (IAR) of a registered investment advisor. That includes obtaining a Series 65 license. If you also plan to pursue a Series 7 license, you’ll need to complete the Securities Industry Essentials (SIE) exam as a prerequisite.
The next and critical step is registering with either the Securities and Exchange Commission or your state regulatory agency. Again, which one you register with is determined by the amount of assets you have under management. Firms with assets under management exceeding $110 million must register with the SEC, while smaller firms may be able to choose between state and federal registration.
As to how to land a job as a 3(21) or 3(38) fiduciary, you may need to start in an entry-level role with an RIA and work your way up. Earning one or more professional credentials or designations can enhance your profile among recruiters and prospective employers.
For example, you may complete accredited investment fiduciary (AIF) training or accredited investment fiduciary analyst (AIFA) training, both of which are designed to enhance your fiduciary knowledge. The National Association of Plan Advisors (NAPA) offers the certified plan fiduciary advisor (CPFA) credential, which emphasizes fiduciary responsibility, regulatory compliance and plan management best practices. These types of credentials are not required to work as a 3(21) or 3(38) fiduciary, but holding any of them could give you a competitive edge when you’re ready to find your next role.
Frequently Asked Questions (FAQs)
What Professional Standards Apply to 3(21) Fiduciaries?
A 3(21) fiduciary must act in the best interests of plan participants and their beneficiaries. They must carry out their role with care, skill, prudence and diligence, and continuously monitor plan investments. They must disclose conflicts of interest and present their investment recommendations to the plan sponsor, in accordance with all plan documents.
Do 3(38) Fiduciaries Require the Plan Sponsor’s Approval to Buy and Sell Investments?
No, a 3(38) fiduciary does not need the plan sponsor to sign off on investment decisions. The plan sponsor can monitor the fiduciary’s process and decisions, but ultimately, the fiduciary has full discretion in what to buy or sell.
Can Plan Participants Sue a 3(21) or 3(38) Fiduciary?
Retirement plan participants can sue a 3(21) advisor for breach of fiduciary duty if advice given to the plan sponsor is deemed imprudent. A 3(38) fiduciary can also be sued for actions that constitute breach of fiduciary duty, such as self-dealing or charging excessive fees. The Supreme Court has upheld the right of plan participants to sue in several cases, most recently with its April 2025 ruling in Cunningham v. Cornell University.1
Bottom Line
Understanding the difference between 3(21) and 3(38) fiduciary advisors comes down to responsibility and discretion. Both roles operate under a fiduciary standard, but they vary in how much authority and liability the advisor assumes when managing retirement plan investments. For plan sponsors, choosing the right fiduciary model depends on how much control they want to retain and how much risk they want to delegate. Clear distinctions between these roles can support better decision-making.
Tips for Growing Your Advisory Business
- Once you are working as an advisor, one of the most important things you can do is to find a consistent way to bring in new clients. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- Professional certifications are not necessary to become an RIA, though there can be some advantages to having them. For example, becoming a certified financial planner or chartered financial consultant could lend you credibility and underscore your knowledge. That could help attract prospective clients who are looking for a reputable advisor for your business.
Photo credit: ©iStock/MixMedia, ©iStock/Renata Hamuda, ©iStock/svetikd
Article Sources
All articles are reviewed and updated by SmartAsset’s fact-checkers for accuracy. Visit our Editorial Policy for more details on our overall journalistic standards.
- CUNNINGHAM ET AL. v. CORNELL UNIVERSITY ET AL. . Supreme Court of the United States, https://www.supremecourt.gov/opinions/24pdf/23-1007_h3ci.pdf.