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).”

In the meantime, several states have enacted their own fiduciary regulations, with other proposals making their way through legislatures, and professional organizations within the financial industry have weighed tightening their own standards. Simultaneously, the SEC is at work drafting a fiduciary rule of its own.

Many advisors fear that the SEC’s fiduciary regulation would water down the work of the DOL, yet many are optimistic that federal policy makers continue to consider best-interest regulations.

At TD Ameritrade, a spokesperson said that the company hopes the SEC can come forward with a universal fiduciary rule in the wake of the decision.

“We’ve long said we support a fiduciary standard when providing personalized investment advice to retail investors, and this ruling may provide the SEC with an opportunity to establish one that applies to all accounts, not just retirement accounts,” said Joseph A. Giannone, TD Ameritrade Institutional spokesperson.

While the SEC is expected to come forward with its own fiduciary regulation within the next few months, the DOL has continued to review its own regulations.

While the court decision prevents the DOL from enforcing its rule, the review process is expected to continue or accelerate, according to the Wagner Law Group.

“We do think that the Fifth Circuit's decision will encourage [Labor] Secretary [Alexander] Acosta and others in the Trump administration to speed up the DOL's review of the fiduciary rule,” wrote Wagner. 

Tony Stich, chief operations officer at Advicent, believes that the financial industry has moved too far in the direction of fiduciary advice to turn back the clock.

“Significant investments from broker-dealers and larger institutions to meet the DOL expectations have largely been put in place,” said Stich. “We don’t’ envision a great deal of rollback considering the restructuring and investment.”

Stich also believes that, while the Trump administration may have opposed to the DOL’s rule making, they would be less hostile to a regulation written by the SEC.

Jon Stein, CEO and founder of 401(k) robo-advisor Betterment for Business and a staunch fiduciary advocate, expressed his disappointment at the decision.

“Throughout the fight for the fiduciary rule, we’ve seen positive evolution to financial services--including easier access to low-cost investments and heightened awareness of how financial providers are compensated,” said Stein in a released comment. “The decision to void the fiduciary rule is not only a step backwards for the industry, but an attack against the biggest benefit for America’s 75 million hard-working retirement savers. Once again, Wall Street firms have won at the expense of the individual investor.”

Meanwhile, the Indexed Annuity Leadership Council (IALC), another financial industry group opposed to the DOL rule, voiced its support for the Fifth Circuit’s ruling.

“We are pleased with the Fifth Circuit’s ruling and believe it to be a win for American retirement savers,” said Jim Poolman, executive director of the IALC. “We disagreed with the DOL’s enforcement mechanism because it operated to reduce access and limit choices for individuals who have worked hard to plan and save for their financial futures.”

Dan Jamieson contributed to this report.