Fiduciary vs. Broker Dealer: Who should manage your company 401k?

Who’s legally responsible when your 401(k) plan gets hit with a lawsuit—your company, or your advisor?
And is your advisor someone who takes accountability, or someone who simply makes suggestions and walks away?

Choosing a retirement plan advisor is a lot like choosing a guide for a mountain hike. One says, “I’ll suggest some trails, but if you get lost, that’s on you.” The other says, “I’ll lead the way, I’ll make sure we don’t wander off course, and if something goes wrong, I’m accountable too.”

This difference can also be equated with working with either a broker-dealer or a Registered Investment Advisor (RIA). One makes recommendations. The other shares responsibility—legally and ethically.

In this article, we’ll break down the five core differences between broker-dealers and fiduciary RIAs when it comes to your 401(k) plan:

• Who takes legal responsibility
• How compensation models create (or reduce) conflicts of interest
• What scope of services you should expect
• How liability is shared in case of a lawsuit
• And how to decide which option is right for your business

Core Difference #1: Fiduciary Obligation

RIAs: By law, RIAs must act as fiduciaries. That means they are legally and ethically required to put your plan participants’ best interests first at all times. They can accept fiduciary status as:

• Co-fiduciary (§3(21)): Shares responsibility with you; you still have final say.
• Full fiduciary (§3(38)): Has discretion to choose and monitor investments for you.

Broker-Dealers: Typically operate under a “suitability” standard, not a fiduciary one. They must recommend products that are suitable—but not necessarily the best or lowest-cost option for your employees.

Example: If two funds are nearly identical, but one pays a higher commission, a broker-dealer could legally recommend the commission-paying option. An RIA, as a fiduciary, would be required to recommend the better option for your employees.

Core Difference #2: Liability and Accountability

RIAs: When they sign on as fiduciaries, RIAs share or even take full responsibility for plan investment decisions. If fees aren’t benchmarked or investments aren’t properly monitored, the RIA can be held accountable in court alongside (or instead of) the plan sponsor.

Broker-Dealers: Generally do not accept fiduciary status. If your plan ends up in a lawsuit—for example, employees claim they paid too much in fees—you as the employer are left carrying the liability alone.

Example: Lawsuits are constantly being filed against 401(k) plans over excessive fees, share classes, and not properly following processes. With an RIA serving as a fiduciary, the employer has legal backup. With a broker-dealer, the company is left exposed.

Core Difference #3: Compensation Model

RIAs: Usually charge a flat fee or a percentage of plan assets, clearly disclosed. They don’t earn commissions or bonus payments for selling certain funds. This reduces hidden conflicts of interest.

Broker-Dealers: May earn commissions or incentives for steering clients toward certain products. While many broker-dealers act ethically, their pay structure can create misaligned incentives.

Example: Imagine shopping for health insurance. If the broker earns a bonus for pushing one carrier over another, you might not be getting the objectively best deal. The same dynamic can exist with retirement plans.

Core Difference #4: Scope of Service

RIAs: Retirement-plan-focused RIAs understand that investments are only about 15% of the job. The rest includes:

• Designing the plan (eligibility, match formulas, safe harbor rules)
• Ensuring payroll data syncs correctly
• Monitoring and repricing fees
• Reviewing investment share classes
• Documenting fiduciary decisions
• Educating employees

Broker-Dealers: Often focus primarily on the investment menu. They may not handle (or even understand) the payroll, compliance, or fiduciary governance side of things.

Example: An employer might assume their broker-dealer advisor is monitoring payroll data and plan compliance when, in fact, the advisor’s role is limited to reviewing investment performance once a year. In that kind of situation, payroll errors could go unnoticed for months and ultimately cost the company thousands in corrections.

Core Difference #5: Decision-Making Power

RIAs: With a §3(38) arrangement, an RIA can make the investment fund decisions for you —so you don’t have to but still communicate with you in the process. This is invaluable if you don’t have a deep bench of HR or finance staff.

Broker-Dealers: Leave the final responsibility with you. They may suggest, but you ultimately have to make all decisions—and you’re liable for them.

Example: Picture a small manufacturing company where the CFO wears five hats. With a broker-dealer, that CFO has to review every fund change, even without technical expertise. With an RIA as §3(38) fiduciary, the advisor makes those changes, documents them, and shields the CFO from unnecessary risk.

Get a no-cost second opinion on your retirement plan. 

Fiduciary RIA vs. Broker-Dealer: What You’re Really Choosing

Cost is often the final deciding factor for many employers, but perceptions about fiduciary pricing don’t always match today’s reality.

The Cost Question: Are Fiduciary RIAs More Expensive?

Many employers assume fiduciary advisors cost more. In reality, total 401(k) plan fees across the industry have been trending downward for years, including investment, recordkeeping, and advisory costs.¹ ²

How much you pay depends on your plan’s size, complexity, and the advisor’s scope of work—not simply on whether they’re a fiduciary. Recent benchmarking studies suggest that fiduciary Registered Investment Advisers (RIAs) are often competitively priced with broker-dealers, especially when you factor in the value of proactive oversight, transparent fees, and ongoing accountability.

Fiduciary RIAs typically charge a clearly disclosed, asset-based or flat fee and do not earn commissions for recommending specific products. Broker-dealers may receive compensation tied to certain investments, which can make their “headline” advisory fee appear lower—until indirect costs such as fund revenue sharing or higher share-class expenses are considered.

The key takeaway: the real difference is not usually in the price—it’s in how you pay, what’s included, and who’s accountable for plan decisions.

How to Compare Apples to Apples

When evaluating proposals, ask each advisor for a standardized 408(b)(2) fee disclosure that itemizes:

• Advisory fees (who receives them and whether they’re fiduciary or not)
• Investment expenses (net of any revenue sharing or 12b-1 fees)
• Recordkeeping and administrative costs
• Any indirect compensation or platform fees

Also request confirmation—in writing—of whether the advisor will serve as a fiduciary under ERISA §3(21) (co-fiduciary) or §3(38) (discretionary fiduciary). This single distinction determines who shares legal accountability for plan investment decisions.

By comparing both cost and fiduciary responsibility, you’ll get a clearer sense of each advisor’s true value—and how their incentives align with yours.

How to Decide What’s Right for You

No matter which fiduciary structure you choose, communication with plan sponsors doesn’t change. Whether we’re serving as a co- or full-fiduciary, our process remains transparent, collaborative, and proactive—you’re never left out of the loop. The real difference lies in how much legal liability you want to retain versus delegate.

Final Thought

Choosing between a fiduciary RIA and a broker-dealer isn’t just about titles or financial industry jargon—it’s about responsibility. One partner gives you suggestions. The other shares the weight of your decisions and stands beside you when it matters most.

If you’re worried about being left exposed in the event of a lawsuit, paying too much in hidden fees, or not having the internal staff to manage compliance—these aren’t small issues. And they’re not hypothetical. They’re the real challenges many employers face with retirement plans today.

Now that you know the five key differences, your next step is to assess your current 401(k) advisor. Are they acting as a fiduciary? Do they share legal liability? If not, it’s time to speak with an advisor who will.

Contact our team of Retirement Plan Specialists to learn more. 

At Carnegie Investment Counsel, we serve as full fiduciaries for every client. That means no commissions, no hidden agendas—just shared accountability and long-term partnership. 

For over 50 years, we’ve helped businesses and individuals gain clarity and confidence in their financial futures. We don’t just pick funds—we design, monitor, and support the entire retirement plan, so you can focus on running your business.

You deserve an advisor who shares the responsibility, not just the recommendations. Let’s build it together.

For informational and educational purposes only. This is not intended as legal advice. Opinions are subject to change.

Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.  You may also visit our website at: https://www.carnegieinvest.com.