Exempt Reporting Adviser vs Registered Adviser
A manager who advises only private funds and has less than $150 million in assets under management in the United States can generally be an exempt reporting adviser (ERA) and file a shortened Form ADV with the SEC instead of fully registering. Venture capital fund advisers have a separate exemption. ERAs still face anti-fraud rules and state requirements, while registered advisers also comply with custody, compliance program, books and records and other rules.
Who needs to register
The Investment Advisers Act regulates people who are paid to advise others on securities. A fund manager is usually an adviser to the fund. Federal law exempts certain advisers from registration while still requiring them to report. The most common exemptions for fund managers are the private fund adviser exemption for advisers with under $150 million in U.S. assets who advise only private funds, and the venture capital fund adviser exemption. Above the threshold, registration generally applies.
Side by side
| Exempt reporting adviser | Registered adviser | |
|---|---|---|
| Filing | Shortened Form ADV, updated annually | Full Form ADV, with a brochure for clients |
| SEC examination | May be examined, less routinely | Subject to routine examinations |
| Compliance program | Not required by rule, advisable | Written policies, chief compliance officer, code of ethics |
| Custody rule | Not directly applicable | Applies, with audit option for pooled funds |
| Anti-fraud rules | Apply | Apply |
What an ERA still must do
- Follow the anti-fraud provisions, including the rule that prohibits misleading statements to investors in pooled vehicles.
- Comply with the pay-to-play rule, which limits political contributions when seeking government investors.
- Keep certain records and file Form ADV updates on time.
- Meet state-level requirements. See Texas adviser notice filings.
Calculating assets under management
Regulatory assets under management include the value of private fund assets, including uncalled commitments, and are calculated under SEC instructions. A manager approaching the threshold should plan ahead, since crossing it can require registration within a set window. Ask your attorney to review the calculation before filing.
Why it matters at formation
The adviser status shapes costs, compliance work and the story told to investors. Many first-time managers qualify as ERAs and file annually. Plan for the day the fund grows. See management company vs GP entity for how the adviser entity fits.
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Book Free ConsultationFrequently asked questions
Is an ERA exempt from the SEC?
Exempt from registration, but not from reporting, anti-fraud rules or examination.
What is the asset threshold?
The private fund adviser exemption applies below $150 million in U.S. private fund assets under management, as defined by SEC rules.
Does a real estate fund manager need to register?
It depends on whether the fund's interests are securities and whether the manager advises on securities. Many real estate fund managers file as ERAs. Get advice.
What if I cross the threshold?
Registration may be required within the period the SEC rules allow. Plan before you reach it.