So what should firms and advisors do now while awaiting the DOL’s next legal move? For the short term, until May 7 at least, the rule remains in effect. “Therefore, firms must still comply to avoid possible regulatory action or private litigation,” Drinker Biddle said. “If the DOL seeks to overturn the Fifth Circuit ruling, we think a stay of the ruling is likely, which means that firms would need to continue complying with the fiduciary rule until a final judgment is issued.”

To the extent that firms have adopted internal policies or opened communications with clients that implement the rule, they will need to continue complying with their policies and procedures and communications made to clients until the fate of the law is certain and they formally begin to make changes.

“Otherwise, they could face regulatory problems with the SEC, Finra or state regulators (similar to the Massachusetts complaint against Scottrade),” Drinker Biddle said.

Even if the Fifth Circuit decision becomes effective on May 7 and the DOL rule is vacated, there is another possible trap for the unwary, said the law firm:

The general rule seems to be that when a rule is “vacated,” it means the rule was never valid to begin with. This may be good news to firms that became fiduciaries as of June 9, 2017.

But it’s not such good news for firms and advisors that were fiduciaries before that (and continue to be). If they have received “conflicted compensation” (for example, revenue sharing or other variable compensation) in reliance on the best-interest contract exemption (BICE) since June 9, they’ll have a problem, Drinker Biddle said.

That is because BICE would also be “vacated” effective on that date, so they would no longer have an exemption for the conflicted compensation they received.

Broker-dealers may need to find a way to unwind some of their conflicted compensation deals and practices.

The Fifth Circuit ruled that the DOL’s fiduciary advice definition is inconsistent with ERISA’s definition and that the DOL acted “arbitrarily and capriciously” by failing to follow the Administrative Procedure Act.

As a result, the court decided to get rid of the entire rule in toto.