The Growing Need for 3(38) Fiduciaries

Ronnie Cox

A decade ago, many plan sponsors and even many financial advisers rarely encountered the term “3(38) fiduciary.” Today, it is increasingly common to see retirement plan committees outsource investment discretion to third-party experts.

Several factors might explain the growing appeal of 3(38) fiduciary services, which give the manager full discretionary authority over a retirement plan’s investment menu. Interest in alternative assets, once largely confined to institutional portfolios and ultra-high-net-worth investors, is starting to trickle into the defined contribution world. Plan lineups now include a mix of mutual funds, collective investment trusts and separate accounts, each with their own share classes, pricing models and provider structures. At the same time, financial advisers are looking for new ways to deliver value in a fee-conscious market.

These trends may be driving traction for 3(38) fiduciary services, both among financial advisers and the plan sponsors they support.

Private Market Interest in 3(38)s

Growing interest in private market strategies, fueled in part by President Donald Trump’s August 2025 executive order on increasing access to alternative assets, may be introducing new oversight demands. While it could be years before private equity and private credit investments become a standard feature in 401(k) menus, some financial advisers may already be weighing arguments for including those asset classes in portfolios.

Plan committees may lack the tools and expertise to evaluate private market products, as they include everything from private equity and real estate to private credit and infrastructure funds. In that context, hiring a 3(38) fiduciary may give sponsors a way to navigate the product set while meeting their obligations under the Employee Retirement Income Security Act.

But private funds come with challenges. Unlike public equities, private companies do not offer easily accessible performance data—there are no public exchange trade data to pull, no earnings calls to review. Liquidity also remains a concern. Many private funds include lock-up periods or redemption restrictions that may not align with the daily valuation and daily liquidity expected in DC plans. Fees for alternative investments also tend to be higher than those for traditional public mutual funds, raising the risk of scrutiny on share class selection or cost vs. value.

All of this may factor into sponsors’ and advisers’ concerns about litigation. ERISA lawsuits often focus on investment fees and fund performance. Still, if interest in private market investments continues, 3(38) fiduciaries with the tools to assess product structure, liquidity buffers and ERISA suitability may find themselves well-positioned to meet this need.

Complexity Makes Outsourcing Appealing

Alternative assets, custom lineups, managed accounts, collective investment trusts: Plan sponsors today may be facing more administrative and legal pressure—and need more expertise—on their investment menu than they did 10 years ago.

That need may be particularly acute in smaller companies where human resources or finance leaders wear multiple hats. But fiduciary risk may also be difficult for large organizations to ignore, especially if billions in participant assets are involved. In both cases, outsourcing fund selection, monitoring and replacement to a 3(38) manager could help companies stay compliant while they focus on other priorities.

From the adviser’s perspective, 3(38) fiduciary services may also provide access to lower-cost investment vehicles such as CITs. An individual plan might not meet certain CITs’ minimums, for instance. But if an adviser is the investor of record across dozens or hundreds of plans, they could aggregate assets to meet those thresholds and bring institutional pricing to smaller clients.

Some plan sponsors may hesitate to relinquish full control over the investment lineup to a 3(38) fiduciary. Perhaps they have a strong preference for certain asset managers or want to retain control over investment selection. But many employers would not claim to meet ERISA’s prudent expert standard, which calls for a level of knowledge, skill and care mirroring that of a seasoned investment professional. Outsourcing oversight to a qualified 3(38) may help these employers reduce risk and maintain their duty to act in participants’ best interests.

Are 3(38) Roles More Scalable?

Advisers appear to have become more willing to adopt 3(38) roles over the last decade. One reason may be simple: It scales.

Fee compression has reshaped the economics of plan advising. For advisers supporting dozens of small and midsize plans, transitioning from working as a 3(21) adviser to serving as a 3(38) fiduciary may provide a way to streamline operations. Instead of supporting dozens of custom lineups, an adviser acting as a 3(38) fiduciary can manage a single lineup and implement changes without needing approval from each client.

With new tools to implement CITs, they can construct low-cost, diversified menus that would be challenging for individual sponsors to source on their own.

There is still debate in the industry about how 3(38) services should be priced. Some believe higher liability should invoke a higher fee. Others argue that acting with discretion actually reduces both the workload and the litigation exposure that comes from waiting on sponsor sign-off for every fund change.

In the future, we may see advisory firms charging more for 3(21) services—not because they carry more risk, but because supporting dozens of bespoke lineups requires more hands-on monitoring. The centralized 3(38) approach may deliver a more cost-effective service model for both adviser and client.

Where the 3(38) Role May Be Headed

Delegation is not abdication.

That is an important distinction to remember as more plan sponsor committees consider hiring 3(38) fiduciaries. The 3(38) provider’s process, fee arrangements and lineup quality still need to be monitored. But with the right partner, the model may provide a more scalable, defensible way to meet ERISA obligations and serve participants.

For advisers, the 3(38) role may open the door to efficient, high-value service delivery. For plan sponsors, it may offer the best of both worlds: peace of mind and a professionally managed lineup built on a foundation of documented process and prudent oversight.

Ronnie Cox is the investment director of Human Interest Advisors.