(Photo: J. Scott Applewhite/AP) Supreme Court. (Photo: AP)

The 5th Circuit Court of Appeals decision vacating the Labor Department’s fiduciary rule has spawned competing views among legal experts over whether the regulation is still in effect in some areas of the country.

Attorneys for Gibson Dunn, the law firm that argued before the 5th Circuit on behalf of the U.S. Chamber of Commerce and industry trade groups, have said that the ruling categorically removes the rule throughout the country.

(Related: Scalia: DOL Fiduciary Rule Will Be Obliterated)

“Because the effect of vacatur is, in essence, to remove a regulation from the books, its effect is nationwide,” wrote attorneys for Gibson Dunn in a client briefing.

But other experts have said the decision only applies in states under the 5th Circuit’s jurisdiction—Louisiana, Texas, and Mississippi.

The rule “remains in effect in the rest of the country,” wrote attorneys for the Wagner Law Group, basing that position of a ruling in the 10th Circuit Court of Appeals, which upheld the rule’s treatment of fixed indexed annuities.

While the Labor Department has said that it will not enforce the rule, “pending further review,” legal consultants to financial services providers and plan sponsors are advising clients to continue to comply with the rule’s impartial conduct standards, the component of the regulation that was implemented in June 2017.

“From where we’re sitting, we have to advise clients to keep focused on what you’re supposed to be doing until the rule is formally gone,” said Jason Roberts, CEO of the Pension Resource Institute.

PRI has already advised its clients to continue to comply with the impartial conduct standards, which require recommendations to retirement accounts to be in investors’ best interests, for the immediate future, Roberts told BenefitsPRO.

“If you continue to aspire for anti-conflict policies, you are going to lower your risk,” said Roberts.

While the Labor Department may not be enforcing the rule, private litigants and state regulators can still bring claims against brokers and advisors, noted Roberts.

“The DOL set a high fiduciary bar. If you shoot for that bar, then you are much more likely to be in compliance with the rule that ultimately emerges from the SEC,” added Roberts, referring to that agency’s efforts to establish new sales standards across all investment accounts. “From a risk management perspective, you will be in a better place.”

While maintaining compliance with the impartial conduct standards presents a navigable pathway as the Labor Department considers an appeal of the 5th Circuit decision, Roberts is cautioning clients to not formally implement the rule’s requirements that have been delayed until July 2019.

Earlier this month, regulators in Massachusetts brought claims against Scottrade Inc. for failing to follow a prohibition on sales contests in the firm’s compliance manuals.

Such contests are prohibited under the fiduciary rule, but that part of the regulation that was delayed until next year.

“They prematurely baked the rule’s requirements that haven’t taken effect into their supervisory manuals,” said Roberts, opening the door for regulators. “I would not have advised they do that.”

While there is a chance the Trump administration may decide to drop its defense of the fiduciary rule, most experts are predicting the 5th Circuit’s decision will be appealed, either an en banc review at the appellate level, or to the Supreme Court.

Under that scenario, it is possible the decision itself could be stayed until a final ruling, exposing service providers to potential liability in the process.

The Wagner Law Group is also advising clients to proceed under the assumption that the fiduciary rule remains in effect nationwide.

“We think that the prudent and best course of action for the moment is to maintain existent efforts to satisfy the impartial conduct standards,” attorneys for the firm wrote in a client brief.

“Unless and until the legal picture is clarified, failure to comply with those standards creates a great degree of risk, particularly outside of Texas, Louisiana and Mississippi,” according to the firm.

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