3(21) or 3(38): Which Fiduciary Does My Plan Need?

Somewhere in every conversation about hiring — or re-evaluating — a plan advisor, the numbers come up: is this a 3(21) arrangement or a 3(38)? The shorthand comes from the sections of ERISA that define the roles, and the distinction isn't academic. It decides who makes the plan's investment decisions, who's responsible for them, and what the committee's own job becomes.

What the numbers mean

A 3(21) investment advisor is a co-fiduciary who recommends: they advise on the menu, and the committee keeps the final decisions. A 3(38) investment manager — a bank, insurer, or registered investment adviser — is appointed with discretion to decide, and must acknowledge its fiduciary status in writing. A 3(21) advises; a 3(38) acts.

The difference at a glance

	3(21) Investment Advisor	3(38) Investment Manager
Who selects the funds	The committee, on the advisor's recommendation	The manager, with discretion
Fiduciary responsibility for the lineup	Shared by advisor and committee	Transferred to the manager
What the committee still owns	Every investment decision, plus monitoring the advisor	Prudent selection and monitoring of the manager
Typical fit	Committees that want expert input but keep control	Committees that want investment decisions delegated

3(21): advice, shared responsibility

Here the committee stays the decision-maker. The advisor brings research, monitoring, and recommendations; the committee deliberates and votes. That preserves control and engagement — but the committee shares responsibility for every decision, so its minutes and process matter all the more.

3(38): delegated discretion

Here the manager selects, monitors, and replaces investments itself. Done properly, that transfers fiduciary responsibility for those decisions off the committee — meaningful relief for a group short on time or investment expertise. The trade is control, and the arrangement is only as good as the manager chosen.

What neither one eliminates

No arrangement removes the sponsor's own duty. As we cover in employer fiduciary responsibilities, fiduciaries who delegate still have to prudently select the expert and monitor them. Hiring a 3(38) and never reviewing its work is itself a breach, and the fee for either arrangement should be benchmarked like any other plan expense.

How Regency screens the field

Choosing between a 3(21) and a 3(38) is only half the decision. The other half is which firm fills the role. Regency runs an open-architecture search across the leading investment advisors and managers in the market. There is no house list and no provider paying for a place on it. We score each candidate against the plan in front of us: the menu's complexity, the committee's bandwidth, the fee the role should command, and the service participants need. Then we bring forward the few that fit, not the one with the best sales deck. The result is a manager or advisor chosen on the plan's terms, with the comparison documented for the file.

How committees should choose

Both can be prudent; what matters is fit. A committee with investment expertise and the discipline to meet and document may do well with a 3(21). One stretched thin often gains more from a 3(38). Either way, give the decision the rigor of a provider search: compare candidates, restate fees in hard dollars, and record why you chose. Regency advises on structuring and evaluating these arrangements as an independent, fee-only consultant. We are open-architecture and paid by no advisor or manager, so the recommendation answers only to the committee.