Understanding Fiduciary Responsibilities
Step-by-step guide to understand your fiduciary options.
Are you prepared to accept personal liability for your retirement plan?
Every retirement plan has at least one fiduciary—someone who’s responsible for administrative, operational, and investment management. If these responsibilities aren’t carried out diligently and in the best interests of employees, the fiduciary is personally liable.
Many business owners aren’t investment experts, and they outsource aspects of their fiduciary responsibility.
Is partnering with a 401(k) fiduciary right for your company? Consider your options.
It’s Your Duty
A retirement plan isn’t a set-it-and-forget-it program. Acting in the best interest of plan participants means paying close attention to your duties as a 401(k) fiduciary and keeping up with administration, operations, and investment management, so that every employee gets the retirement plan they expect and deserve.
What is a Fiduciary
The fiduciary role is about taking responsibility for doing what’s right.
As a plan sponsor, your employees are counting on you to help them save for retirement. A 401(k) that charges excessive fund fees, is poorly run, or isn’t managed with employee interests at heart puts their savings at risk. And that puts you at risk.
A fiduciary is a person legally required to act in someone else’s best interest.
A fiduciary is held to a standard “stricter than the morals of the market place.”
If you make decisions for the company 401(k) plan, you are a fiduciary.
Understanding Fiduciary Risk
You have a duty to protect your plan and employees.
Fulfilling your obligations as a fiduciary under the Employee Retirement Income Security Act (ERISA) is no small task. Documents, meetings, oversight, investment options, plan assets, employee communications—falling short of your duties can have serious consequences for you, your employees, and your retirement plan.
A fiduciary partner can help you carry out each of these duties faithfully and avoid putting employees or the company at risk.
- Ignorance is no defense in a court of law.
- A fiduciary is personally liable to make good on plan losses due to an ERISA provision breach.
- The Department of Labor may assess a civil penalty equal to 20% of the recovery amount.
- Individuals may be fined up to $100,000 and jailed up to 10 years for ERISA violations.
- Companies may face up to $500,000 in fines for ERISA violations.
Liability Can Be Costly
In 2024, the Department of Labor recovered more than $1.4 billion from business owners and other fiduciaries for violations. Failure to act solely in the best interest of the retirement plan (even if it was a mistake) can cost you tens of thousands of dollars in legal fees, settlement costs, and time wasted.
Five Legal Obligations of an ERISA Fiduciary
Being an ERISA fiduciary comes with big responsibilities—like acting in participants’ best interests, monitoring fees, and keeping investments diversified. This table breaks down the five key obligations and shows how you can stay compliant without feeling overwhelmed.
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Fiduciary Obligation
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How Fisher\SMB Fulfills Requirement
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Duty of Loyalty
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Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.
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As a fiduciary, Fisher\SMB is obligated to act in the interests of your plan and participants.
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Duty of Loyalty
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Avoid conflicts of interest.
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Fisher\SMB avoids conflicts of interest (e.g., revenue sharing), and helps you monitor other providers for conflicts of interest.
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Duty of Loyalty
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Monitor conformity to fiduciary obligations owed to plan participants and beneficiaries.
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Fisher\SMB supports this provision by helping the plan comply with 404(c) and other obligations.
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Duty of Prudence
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Know standards, laws, and trust provisions.
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Fisher\SMB supports this process by providing ongoing education, like this training, to plan fiduciaries on standards.
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Duty of Prudence
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Prudently select service providers and document due diligence meetings.
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Fisher\SMB supports this process by Fisher\SMB supports this process by proactively benchmarking plan fees and services.
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Duty of Prudence
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Document plan activities, advice, and actions.
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Fisher\SMB helps create and maintain a fiduciary audit file.
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Duty of Prudence
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Monitor service providers and prudently manage service provider relationships.
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Fisher\SMB supports this process by liaising between you and the other service providers.
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Duty of Prudence
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Make fund lineup decisions and continually monitor and update investments.
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Fisher\SMB does this on your behalf as an ERISA 3(38) Investment Manager.
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Duty of Prudence
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Prepare investment policy statement.
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Fisher\SMB assists in developing and assessing the plan’s Investment Policy Statement.
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Duty to Diversify
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Provide enough investment options to allow participants to build diversified portfolios and minimize the risk of large losses.
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Fisher\SMB does this on your behalf as an ERISA 3(38) Investment Manager.
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Duty to Ensure Fee Reasonableness
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Duty to monitor costs and performance.
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Fisher\SMB supports this process by proactively benchmarking plan fees & services. Fisher\SMB continuously reviews the fund lineup for cost reasonableness.
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Duty to Follow Plan Document
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Operate the plan according to the plan document as well as other plan documents such as the trust agreement.
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Fisher\SMB follows the plan document.
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Compare Fiduciary Options
A fiduciary partner can help you manage risk and reduce your liability.
Not all retirement plan advisors are the same. Knowing your level of comfort with investment management decisions and the liability that comes with them can help you find the right partner for your 401(k).
3(21) Plan Advisor
A co-fiduciary makes investment recommendations and the sponsoring company remains liable for decisions.
3(38) Investment Manager
A fiduciary who takes legal responsibility for investment management decisions. The sponsoring company is not liable for the manager’s decision.
CEFEX® Investment Manager
A CEFEX®-certified 1 fiduciary (awarded to just 1% of advisors globally) who takes legal responsibility for investment management decisions. The sponsoring company is not liable for the manager’s decisions.
Find Your Comfort Level
When evaluating your fiduciary needs, consider a few essential questions:
- Do you want to work with someone who makes investment recommendations or decisions?
- Do you want to take on full fiduciary responsibility, shared responsibility, or no responsibility?
- How involved do you want to be (or are equipped to be) in plan-related investment decisions?
Fisher\SMB Redefines What It Means to be a Partner in Retirement
As a CEFEX®-certified ERISA 3(38) Investment Manager 2, we always put your interests first. Our rigorous process curates a top-notch fund lineup and we reduce your liability for investment decisions.
- Fund Monitoring: Our client-first approach means your plan contains high-quality funds—without kickbacks or conflicts of interest. We continuously monitor and evaluate fund strategies and performance so your fund lineup fits your needs.
- Fiduciary Audit File: We help you create and maintain a file of all plan activities, advice, and actions so that you’re ready when it’s time for an audit.
- CEFEX®: Fisher\SMB is certified as a best-in-breed 3(38) Investment Manager by the Center for Fiduciary Excellence.
Reduce Fiduciary Risk
You don’t have to manage your plan alone.
The amount of fiduciary responsibility you take on is up to you. But if you’re not prepared for time-consuming and potentially confusing plan management tasks, you can work with a retirement plan professional, who can take on the burdens and liabilities of a fiduciary.
Hiring a CEFEX®-certified ERISA 3(38) Investment Manager 3 like Fisher\SMB reduces your liability for investment decisions and takes work off your plate so you can focus on running your business.
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Capability
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Broker-dealer
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3(21) Plan Advisor (Co-Fiduciary)
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Typical 3(38) Investment Manager (Fiduciary)
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Fisher\SMB 3(38) Investment Manager (Fiduciary Plus)
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Obligated to make recommendations in your best interest
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✔
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✔
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✔
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Select plan investment options
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✔
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✔
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Monitors and updates plan investment options
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✔
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✔
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Incentive structures aligned with client success (no revenue sharing)
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✔
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Help create and maintain a fiduciary audit file
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✔
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Fiduciary education for plan committee
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✔
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Protect yourself, your company, and employees by partnering with a fiduciary who has decades of experience working with small and medium-sized businesses. When there’s so much at stake, you don’t want to go it alone.
Frequently Asked Questions
Learn the difference between 3(21) and 3(38) fiduciary services for your 401(k) plan. Understand your responsibilities, reduce liability, and choose the right support for your business.
What’s a Fiduciary?
A fiduciary is someone who is legally responsible for making decisions in the best interest of others. In the case of a 401(k) plan, that means choosing and managing investments that help your employees grow their retirement savings.
Under a law called ERISA (Employee Retirement Income Security Act), you’re a fiduciary if you:
- Make decisions about how the plan is run
- Manage the plan’s money or investments
- Give investment advice for a fee
Even if your job title doesn’t say “fiduciary,” your actions might make you one. And that means you could be personally responsible if something goes wrong.
What Is ERISA?
ERISA is a federal law that protects people in retirement and health plans. It sets rules for how plans should be managed and who’s responsible for what. Two key parts of ERISA are:
- Section 3(21): Defines the term fiduciary
- Section 3(38): Defines requirements of an investment manager
Are You Personally Liable?
If you’re a fiduciary, you are responsible for creating and maintaining a documented, prudent process to select, monitor, and update investments that are appropriate for the plan. If you fail to do this, you could be held personally responsible for losses. That’s why many companies choose to work with outside experts.
What Is a 3(21) Investment Advisor?
A 3(21) advisor helps you choose investments but doesn’t make final decisions. You stay in control and keep the legal responsibility. This means liability for selection, monitoring, and updating the plan’s investments would stay with you. This is a good option if you want expert advice but still want to call the shots.
What Is a 3(38) Investment Manager?
A 3(38) manager takes full control of the investment lineup. They choose, monitor, and update the funds for you. Your job is to pick a good manager and check in on their performance and fees. If your goal is to fully minimize your fiduciary liability, consider hiring a 3(38) investment manager.
What Should I Consider When Hiring a 3(21) or 3(38) Fiduciary?
Think about how much control you want and how much risk you’re willing to take. If you’re confident in managing investments, a 3(21) adviser might be enough. But if you’d rather hand off the responsibility, a 3(38) manager could be the safer bet.
Either way, you’re still responsible for picking the right partner and keeping an eye on their work.
Learn MOre About
The Different Types of Fiduciaries
Don’t Manage Your Plan Alone
If you make decisions for your company’s retirement plan, including signing and filing Form 5500, or plan investment decisions, you are a fiduciary and could be vulnerable to fiduciary risk. Download the checklist to manage your fiduciary risk.
What is a 3(16) Fiduciary
Learn what a 3(16) fiduciary is, how they help with 401(k) plan administration, and why outsourcing these duties can reduce your liability.
FAQ: 3(21) vs. 3(38) Fiduciary Services
Learn the difference between 3(21) and 3(38) fiduciary services. Understand your responsibilities, reduce liability, and choose the right support for your business.
Contact Us
One of our 401(k) business specialists would love to talk to you about your company’s retirement plan needs.
Call Us
(844) 238-1247
