Clarity about the future of the Labor Department’s fiduciary rule, which became very blurry last week when President Donald Trump ordered a review by the department, could come soon, but not necessarily from the Labor Department.

The federal district judge in Dallas overseeing a lawsuit brought by the U.S. Chamber of Commerce and other business organizations opposing the rule decided Wednesday in favor of the Labor Department.

A nationwide ruling in favor of the plaintiffs would have provided “amazing political cover to delay and potentially kill the rule in one swoop,” said Thomas Clark Jr., an attorney with The Wagner Law Group. He was one of several participants in a ThinkAdvisor.com webcast on the fiduciary rule on Tuesday.

On Wednesday, the Justice Department asked the judge, Barbara M.G. Lynn, to postpone issuing her ruling, which she had intended to do by Friday, according to an announcement she made last week.

(Related on ThinkAdvisor: DOJ Tells Texas Judge to Postpone Ruling on Fiduciary)

In Tuesday’s webinar, Clark said a narrow ruling by the judge that favors the plaintiffs on some points and sides with previous federal court rulings favoring the Labor Department – in Washington, D.C. and Kansas – on other points, “may be the worst outcome.” 

In that case, Clark expects the final decision about the rule will revert back to the Labor Department, which is already under instruction from the president to consider whether the rule will harm investors by reducing access to certain retirement offerings, increasing fees and litigation and disrupting the financial advice industry. Acting Labor Secretary Ed Hugler responded, in a statement, that “the Department of Labor will now consider its legal options to delay the applicability date,” which is April 10.

The president’s executive order “doesn’t ask any questions that the DOL has not already considered,” said Clark. “If the DOL grounds it [the fiduciary rule], it opens itself up to the same lawsuits as before,” said Clark. He expects the situation with the fiduciary rule “will be getting messier” before it’s resolved.

One option, said Joshua Waldbeser, an associate at the law firm Drinker Biddle & Reath who also participated in the webinar, is a new proposal from the Labor Department, followed by a request for public comment, or an interim final rule, which would take effect immediately but be subject to comment afterward.

The judge in Texas announced last week that she intends to issue a ruling by Friday, two months before the fiduciary rule is set to take effect.

“The Trump administration might be well advised to wait for that [Texas court ruling] to be on firmer legal grounds,” said Waldbeser.

In the meantime, until there is certainty about the future of the fiduciary rule via the courts or the Labor Department itself, financial advisory firms should continue to move toward compliance during the current transition period, Waldbesser said.

This is the period between April 10 and Jan. 1, giving firms and advisors additional time to be in full compliance although certain requirements will take effect.

During the transition period, for example, advisors and financial firms can qualify for exemptive relief from rules prohibiting variable compensation, such as sales of commission-based products, if a written statement of fiduciary status and conflict of interest disclosures is provided to the client. A transitional Best Interest Contract (BIC) would suffice.

By Jan. 1, full compliance is required, disclosing all conflicts of interest, general disclosure about an advisor’s compensation and a promise to adhere to a best interest standard of care via signed contract between advisor and client and use of a full BIC for exemptive relief.

Fee-based financial advisors, however, may have the option to qualify for an exemption from a best interest conflict with a “streamlined BIC” if they advise a client to roll over assets from a 401(k) into an IRA or recommend that an existing client transition from a commission-based to fee-based arrangement so long so they don’t earn any other variable compensation. Until April 10, however, the independent broker-dealer American Portfolios Financial Services, which has been preparing for the new rule, is holding off on sending out letters to investors about the rule and the transition period, according to Dean Bruno, its chief operating officer who also participated in the webinar.

Even if the rule takes effect, the firm, named Broker-Dealer of the Year in 2016 and 2015 by ThinkAdvisor’s sister publication Investment Advisor magazine, will continue to allow commission-based services, knowing they will receive a higher level of scrutiny, said Bruno.

Neither Clark nor Waldbeser recommended that firms formally adopt any type of BIC or other requirement of the fiduciary rule until there is clarity about whether the rule will take affect and when, which depends on the courts and the Labor Department itself.

If the rule is killed, “It’s hard to justify to a client that they should stay the course and make difficult decisions that the rule requires them to do,” said Clark, referring to a client that’s a financial firm. “No sane advisor or broker-dealer will use a BIC if the rule doesn’t require it.”

But even in that case, said Waldbeser, “I don’t think we’ll ever go back to business as usual in financial services [and] there could be the potential for a legislative solution down the road.”

Bruno agreed. “Everyone recognizes the fact that there is a new standard of care applied to broker-dealers.”

And if the rule instead stands – possibly with some tweaks – there will likely still be confusion about its implementation despite the FAQs the Labor Department issued to provide clarity. “The Labor Department could have done 20 FAQs instead of two and that would not have been enough,” said Clark.

In the meantime, said Clark. “We’re living in a complete state of chaos. Take a deep breath. Have a drink.”

“Keep your ear to the ground,” advised Waldbeser.

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