You’ve likely heard those numbers before in financial guidance discussions. You might not have realized that each of those numbers corresponds to a different fiduciary financial advisor that can significantly impact your financial future. 

We’re here to help you understand the different types of financial fiduciary advisors, so you determine which one aligns with your needs. 

What is a Fiduciary Financial Advisor?

Let’s start with some basics. A fiduciary financial advisor manages assets on behalf of clients with a legal obligation to act in their best interests ^[1]. 

They must:

1. Prioritize clients' interests over their own
2. Act in good faith and provide relevant facts
3. Avoid conflicts of interest
4. Ensure advice is accurate and thorough
5. Refrain from using client assets for personal gain

Types of Fiduciary Advisors

At a high level, these are the key differences between the three fiduciaries: 

• 3(16) focuses on plan administration
• 3(21) and 3(38) specialize in investment management
• 3(21) provides advice, while 3(38) makes investment decisions
  

We’ve broken down in greater detail below what each function entails. 

3(16) Fiduciary

The responsibilities of a 3(16) fiduciary focus primarily on overseeing the administration of a retirement plan. These duties include distributing summary plan descriptions, managing member enrollment, and ensuring compliance with reporting requirements. 

Typically, the role of the 3(16) fiduciary is assigned to an external provider, known as a third-party administrator, hired by the plan sponsor to handle these tasks.

3(21) Fiduciary

A 3(21) fiduciary provides investment advice but does not manage investments ^[2]. In other words, they offer guidance on how the retirement plan's assets should be invested in exchange for a fee. Their level of involvement can vary, from providing limited investment recommendations to playing a more active advisory role. It’s important to note that they share liability with plan sponsors. 

3(38) Fiduciary

A 3(38) fiduciary takes full responsibility for selecting, monitoring, and reviewing funds in a 401(k) ^[2. 

Not every financial professional is qualified to serve as a 3(38) fiduciary. This role is exclusively reserved for banks, insurance companies, and registered investment advisors (RIAs) who oversee 401(k) plans. Unlike a 3(21) fiduciary, who offers guidance and recommendations, a 3(38) fiduciary has the authority to make independent investment decisions on behalf of the plan, delivering a higher level of responsibility and control.

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Latest Statistics Around Fiduciaries

With a better understanding of the different fiduciary responsibilities, we also wanted to provide a breakdown of the latest trends around retirement planning. 

A recent study found that 65% of advisors report their clients spend up to 25% of their time on retirement plan administrative tasks that could be outsourced. Additionally, 25% of advisors indicate that clients spend between 25% and 50% of their time on these administrative duties, highlighting the growing need for efficient outsourcing solutions [9].

Overall, there’s a major area of opportunity in outsourcing some of these fiduciary duties. 

Choosing the Right Fiduciary Financial Advisor

Selecting the right fiduciary financial advisor depends on your specific needs and circumstances. 

Here's a summary to guide your decision:

• Choose a 3(16) fiduciary if you need help with plan administration and compliance
• Opt for a 3(21) fiduciary if you want investment advice but prefer to maintain control over decisions
• Select a 3(38) fiduciary if you want to delegate full responsibility for investment management

Consider factors such as your expertise in financial management, time available for plan administration, comfort level with investment decisions, and desire to share or transfer fiduciary liability. 

Remember, the goal is to find an advisor who aligns with your needs and helps you achieve your financial objectives. Consult with professionals and thoroughly research your options before making a decision.

Savvy Wealth advisors can provide personalized guidance to help you navigate these choices and find the fiduciary solution that best fits your needs.