Today, the choices we make come with concerns that carry fargreater consequences than what flavor of ice cream. For example,consider the process of selecting a fiduciary. (Photo:Shutterstock)

As we enter the Dog Days of summer, traditionally the hottesttime of the year, all minds turn to one thing: ice cream. What'syour favorite flavor? Chocolate or vanilla? Black raspberry orpistachio? And would you like chocolate or rainbow sprinkles?

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Growing up, those represented our exciting (and sometimesoverwhelming) choices. And maybe our greatest worry was eating thatice cream fast enough so it wouldn't melt and drip on the hotpavement that burned our bare feet.

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What flavor of fiduciary would you like? Know your options

Ah, life seems much simpler then. Today, our options come withfar more ominous concerns, concerns that carry far greaterconsequences (though, in many ways, ones that still hold our feetto the fire). For example, consider the process of selecting afiduciary.

We all know 401(k) plan sponsors are better served by hiring afiduciary, but not all fiduciaries are alike (see "What's the Difference Between 3(38) and 3(21) 401kAdvisers?" FiduciaryNews.com, August 6, 2019).

It's not that one is automatically better than the other. Both3(38) and 3(21) share the same fiduciary standard. Both require theadviser to assume a fiduciary role. Both limit the types of serviceprovider that can fill the function.

But they also represent a distinction with a difference.

The best way to metaphorically describe this difference is byasking the question: "Would you rather have a co-pilot or rideFirst Class?"

The 3(21) fiduciary

Think about what hiring a co-fiduciary 3(21) means from anoperational perspective. It places the 401(k) plan sponsor and the3(21) on equal terms. Neither makes a decision without the other.It's like they're both co-piloting the plane. They're both heldaccountable for safe takeoffs and safe landings, as well as keepingthe vehicle in the air. A mistake by one puts the other atprofessional risk.

Inherent in this arrangement, each party has to place a lot oftrust in the other party: The plan sponsor must trust theadviser to offer sound advice. The adviser must trust the plansponsor to act dutifully on that advice.

If the plan sponsor loses faith in the 3(21) adviser, it's timeto get another 3(21) adviser. If the 3(21) adviser feels the plansponsor is acting outside the fiduciary comfort zone, it's time forthe 3(21) adviser to unilaterally resign.

The 3(38) fiduciary

While trust is also present in a 3(38) relationship, the natureof that trust is wholly different. If we go back to our airplaneanalogy we can see why.

In hiring a 3(38) fiduciary, the plan sponsor turns over thecockpit to the adviser. The plan sponsor, within the narrowlydefined scope of the 3(38) relationship, then becomes just like anyother passenger on the plane, although perhaps with more spaciousand cushy seats.

The plan sponsor trusts the 3(38) adviser will have a minimalstandard of competency at the controls. If that trust is broken,the plan sponsor can simply hire another 3(38) to pilot theplan.

Because the 3(38) adviser has full discretion, there is no needfor reciprocating trust (other than the normal trust any vendor hasthat a client will honorably pay for services on a timelybasis).

Unlike what happens in a 3(21) arrangement, the 3(38) adviserdoesn't have to worry about a plan sponsor interfering with thefiduciary process. Thus there would be a diminished likelihood thata situation would arise where the 3(38) adviser would unilaterallyresign.

Although they both come with the word "fiduciary" in their jobdescription, it is this nature of the trust relationship thatdistinguishes 3(38) duties from 3(21) services.

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The 'Fiduciary Rule' versus the 'Rule of Fiduciary'— Carosa

Do you have the 'knows' to be a fiduciary? —Carosa