Fiduciary advocates are hoping for a revival of the U.S. Department of Labor’s fiduciary rule, but a source at the agency said Friday the rule will not be enforced.

A source in the DOL said the agency will cease enforcing its fiduciary rule, which required that all financial recommendations given in the context of a retirement account be in the best interest of the client, in the wake of a court decision vacating the regulation.

"The Fifth Circuit has now vacated the 2016 fiduciary rule in its entirety. Pending further review, the department will not be enforcing the 2016 fiduciary rule," said a source from the DOL who requested to remain anonymous.

Duane Thompson, a senior policy analyst at Pittsburgh-based Fi360, expressed shock that the Fifth Circuit Court of Appeals struck down the rule.

“It’s certainly a surprising decision because it’s out of step with nearly all the other [court] decisions … that have come out strongly in in favor of the department’s rule,” the most recent being a decision Tuesday by the 10th Circuit Court of Appeals in Denver.

Thompson noted that the three-judge panel for the Fifth Circuit found the rule “not amenable to severance,” meaning the entire package had to go.

The decision “left no room for anything—they completely vacated the entire rule. ... They seem to be saying the whole rule stinks,” Thompson said.

Those hoping for a revitalized fiduciary regulation are looking toward three fronts: A possible appeal of the court’s decision, a new universal fiduciary rule written and enforced by the U.S. Securities and Exchange Commission or a fiduciary rule that springs up as a result of widespread industry and consumer demand.

Supporters of the DOL rule would have an uphill battle in appealing to the full Fifth Circuit Court of Appeals, Thompson said, because 10 of the 15 judges were Republican appointees.

“The opponents [of the rule] made a good choice in selecting the Fifth Circuit,” Thompson said.

The rule’s impartial conduct standard took effect last June, so there’s some uncertainty for advisors “until we find out if the DOL will appeal, or proceed with the rule or not,” Thompson said. “At a minimum, we’ll see the SEC proceed with a rule,” he said, adding that state insurance regulators may continue with a beefed-up suitability rule for annuities.

The Fifth Circuit decision might also prompt more state legislatures to move ahead with their own fiduciary standards, Thompson said.

Given that two different U.S. Circuit Courts have issued conflicting rulings on the DOL rule, the ultimate decision on its fate may be left in the hands of the U.S. Supreme Court, the Wagner Law Group said in a statement released on Friday.

“In effect, the fiduciary rule is vacated (or soon to be vacated) in three states, but remains in effect in the rest of the country,” wrote Wagner. “This make it more likely that the Supreme Court will hear the case (either because the DOL appeals the Fifth Circuit ruling to the Supreme Court or others challenge the 10th Circuit or other decisions in light of the Fifth Circuit decision).”

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