Financial Advisor: If the Labor Department’s proposed fiduciary rule for retirement plan advisors takes effect pretty much as is—and all signs are it will be—how will state regulators react?

Shaw: We will watch carefully as the firms implement the rule and certainly going well into the future we will continue our enforcement investor protection roles. We want DOL to modify the proposal to explicitly permit state securities regulation in private pension plans. As is, the rule is silent on whether there will be federal preemption.

Financial Advisor: Small advisory firms and state securities regulators don’t have a lot of money to spend on cyber security. How are your members coping with this reality both in terms of protecting their computer systems and monitoring the IT protections of advisors?

Shaw: This is one of the advantages of an association like NASAA. The individual state securities regulators may not have the resources to hire cyber security experts, but as a group of 50 we can develop the expertise. In addition, our examiners can alert small advisors to cyber securities resources … they can use. As far as internal cyber protection for our members, it should be done on an individual, state government-wide basis.

Financial Advisor: What personally identifiable information do state securities regulators have on the clients of advisory firms they examined that could be obtained by a skilled and determined hacker?

Shaw: I don’t want to go there.

Financial Advisor: A primary reason the Dodd-Frank act raised the size of advisors subject to state exams from $25 million in assets under management to $100 million was to let the SEC have fewer advisors under its oversight so they could examine them more frequently. With SEC-registered advisors being examined only once every 10 years, are you in favor of raising the threshold again?

Shaw: We’d have to do an analysis first. NASAA believes the best way to increase the frequency of exams is for Congress to let the SEC impose a fee on advisors.

Financial Advisor: How often do state regulators examine advisors?

Shaw: [Every] three to five years on average. In Maine, every newly registered advisor is examined in the first year.