The fiduciary rule amended the Employee Retirement Income Security Act to make all providers of investments to qualified retirement accounts fiduciaries, including brokers of securities and insurance agents that make one-time sales recommendations.

And it extended ERISA's original fiduciary definitions that applied to the employer-provided retirement plan market to IRAs in the retail market.

"Although lacking direct regulatory authority over IRA 'fiduciaries', DOL impermissibly bootstrapped what should have been safe harbor criteria into 'backdoor regulation'," wrote Judge Edith Jones in the ruling.

"In the 5th Circuit's view, the Department of Labor's single-minded focus on regulating IRA fiduciaries foreshadowed its downfall," said Erin Sweeney, an ERISA attorney with Miller Chevalier, in an email.

Industry plaintiffs in the case argued the rule's warranty requirements for IRA providers, and its clear preference for fee-based compensation over commission-based compensation, would harm middle-income investors by forcing some providers to stop servicing smaller accounts.

The 5^th Circuit was clearly persuaded by those arguments.

"The fiduciary rule has already spawned significant market consequences, including the withdrawal of several major companies, including Metlife, AIG and Merrill Lynch from some segments of the brokerage and retirement investor market," according to the ruling.

"Millions of IRA investors with small accounts prefer commission-based fees because they engage in few annual trading transactions. Yet these are the investors potentially deprived of all investment advice as a result of the fiduciary rule, because they cannot afford to pay account management fees, or brokerage and insurance firms cannot afford to service small accounts, given the regulatory burdens, for management fees alone," according to the decision. "It is likely that many financial service providers will exit the market for retirement investors rather than accept the new regulatory regime."

The 5^th Circuit noted case law, the Security and Exchange Commission's advisor rules, and the original version of ERISA, all of which distinguish requirements for fiduciary investment advisors from those for brokers and agents engaging in sales activities.

"That DOL contradicts its own longstanding, contemporary interpretation of an 'investment advice fiduciary' and cannot point to a single contemporary source that interprets the term to include stockbrokers and insurance agents indicates that the rule is far afield from its enabling legislation," Judge Jones wrote.

What happens now?

In vacating the rule, the 5^th Circuit also struck down the impartial conduct standards, which were implemented in June of 2017.

The decision creates a circuit split that may influence the Supreme Court's decision to review the case. This week, the 10^th Circuit Court of Appeals issued a unanimous decision upholding the fiduciary rule.

But a potential Supreme Court review assumes the Labor Department will continue to defend the rule.

"We don't know how Labor will react at this point—it's completely unclear," said Kevin Walsh, an attorney with the Groom Law Group.

If Labor stops defending the rule, consumer advocates that support it, like AARP, the Consumer Federation of America, and Better Markets could potentially step in to defend the rule. In the months after President Trump's election, rumors circulated that Labor would stop defending the rule. AARP publicly said it would step in if that were to happen.

"This case was wrongly decided," said Micah Hauptman, an attorney for the Consumer Federation of America, in a statement. "The industry opponents went forum shopping and finally found a court that was willing to buy in to their bogus arguments. This is a sad day for retirement savers. The opinion is extreme by any measure. It strikes at the essence of the DOL's authority to protect retirement savers under ERISA. It's not only an attack on the rule, it's an attack on the agency."

While opponents of the rule will celebrate the decision, it almost certainly will inject more confusion into what was already a roiled regulatory landscape for the financial services and insurance industries.

"Unwinding the rule doesn't change what institutions have already done," said David Levine, also with the Groom Law Group. "DOL enforcement went on before this rule, and it will go on after. And plaintiffs' lawyers brought claims before, and they will continue to do so."

Some brokerage and insurance companies could return to operating as non-fiduciaries, while some may use the fiduciary distinction for marketing leverage, said Walsh and Levine.

Then there is the question of how state regulators will react. Five states are in the process of establishing new fiduciary standards, with others expected to follow.

With the rule vacated at the federal level, states may be galvanized to set their own consumer protections. "Now states might say there is more space to work in," said Levine.

If the Supreme Court accepts a petition to review the rulings from the 5^th and 10^th Circuits, the most likely timetable would be for a hearing next fall, and a decision by June of 2019. More immediately, the Supreme Court could be asked to stay the 5^th Circuit's decision, but Walsh and Levine said that outcome is unlikely.

Most of the fiduciary rule has yet to be implemented, as the Labor Department reviews the rule, as ordered by President Trump, and considers revisions.

Whether regulators at Labor cease the review is yet another unanswered question in the wake of the 5^th Circuits ruling.

The SEC is expected to release a proposed uniform fiduciary standard by the fall.

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