A harrowing journey for the Labor Department's fiduciary rule has become even more treacherous in the last few days, following a decision by the 5th Circuit Court of Appeals to strike down the regulation.
Here are some developments to watch:
• Will the DOL appeal the 5th Circuit decision? The agency has until April 30 to request a rehearing of the appeal before the entire 17-judge 5th Circuit. Given that the chief judge strongly dissented in the 2-1 ruling, perhaps DOL will have better luck before the full complement of circuit judges. The DOL could decide to petition the Supreme Court to take up the case. The deadline for that request is June 13.
• Could an outside party step in as defendant in the case? It might require some crafty legal maneuvering, but if the DOL drops its defense of the fiduciary rule, an advocate for the rule could step in to become the defendant and then seek an appeal of the 5th Circuit decision. Many will be watching to see whether AARP, state attorneys general or investor-protection groups take up this mantle.
• How broadly does the court's decision apply? If the DOL decides to let the 5th Circuit decision stand, most experts say it would kill the rule nationally. But there are a few who argue that the rule would be vacated only in the area of the 5th Circuit's jurisdiction: Texas, Louisiana and Mississippi.
• What happens to enforcement of the rule? Last Friday, the DOL said it is no longer enforcing the fiduciary rule until "further review." Presumably, that means further review of the 5th Circuit decision. The agency previously had said it would not enforce the provisions that are already in place while it conducts its own assessment of the regulation as mandated by President Donald J. Trump, as long as financial firms are making a good-faith effort to comply. Now, it looks as if the Labor Department has gone a step further and will not be enforcing it at all.
• Will the Securities and Exchange Commission play a bigger role? The SEC and DOL have vowed to work together on setting an investment-advice standard. But if the DOL lets the rule die in court, it might also abandon its effort to rewrite the regulation. That would leave the playing field open for the SEC, which has promised to propose its own fiduciary rule later this year. Earlier this week, SEC Chairman Jay Clayton said he wants the SEC rule to set the relationship between clients and financial professionals.
• What happens at the state level? Even if the DOL lets its rule die in the legal system, several states are considering fiduciary legislation. One, Nevada, has enacted a fiduciary law and could be releasing related rules at any time. Also, the National Association of Insurance Commissioners is working on reforming its suitability rule for annuity sales.
This list of questions is likely to grow. The only thing certain about the fiduciary rule — both the DOL and SEC versions — is uncertainty.