An Exempt Reporting Adviser (ERA) is an investment adviser that is not required to fully register with the SEC (as a Registered Investment Adviser or RIA) but is still required to report certain basic information to regulators.
This status was created by the Dodd-Frank Act to provide a “middle ground” for smaller private fund managers and venture capital firms, allowing them to operate with a lighter regulatory burden while still being subject to SEC oversight.
How to Qualify as an ERA
To qualify as an ERA, an adviser must fall into one of two specific categories:
1. The Private Fund Adviser Exemption
This is the most common path for hedge fund and private equity managers.
- Asset Limit: You must manage less than $150 million in Regulatory Assets Under Management (RAUM) in the U.S.
- Client Type: You must advise only “private funds” (typically 3(c)(1) or 3(c)(7) funds). You cannot have any individual clients or managed accounts.
2. The Venture Capital Fund Adviser Exemption
This path is specifically for VC firms and has no asset limit, but strict operational rules.
- Exclusivity: You must solely advise venture capital funds.
- Fund Restrictions: The funds you manage must meet the legal definition of a “venture capital fund,” which includes:
- Holding no more than 20% of the fund’s capital in “non-qualifying” investments (most of the fund must be in direct equity of private companies).
- Limited leverage (borrowing) at the fund level.
- No redemption rights for investors (except in extraordinary circumstances).
What is Required of an ERA?
Being “exempt” does not mean you are invisible to the SEC. If you qualify, you must still:
- File Form ADV Part 1A: You must submit a “lite” version of the Form ADV. This includes information about the owners of the firm, the funds you manage, and any disciplinary history.
- Annual Updates: You must update your Form ADV filing annually within 90 days of your fiscal year-end.
- Pay Fees: You still pay filing fees to the IARD system and the states where you operate.
- Maintain Policies: You must establish written policies to prevent the misuse of material non-public information (Insider Trading) and follow federal anti-fraud provisions.
- State Requirements: Most states require ERAs to “notice file” and pay a state fee if they have an office or a certain number of clients in that state.
ERA vs. RIA: Key Differences
| Exempt Reporting Adviser (ERA) | Registered Investment Adviser (RIA) | |
|---|---|---|
| Registration | Partial (Form ADV Part 1A) | Full (Part 1A, 2A, and 2B) |
| Compliance Program | Not strictly required by SEC | Mandatory Chief Compliance Officer (CCO) |
| SEC Exams | Rare (but the SEC has the authority) | Routine and periodic |
| Custody Rule | Exempt | Must comply (often requires audits) |
Critical Note: If you rely on the Private Fund Exemption and your assets grow to $150 million or more, you generally have 90 days from your fiscal year-end to file for full RIA registration.
Would you like me to look up the specific “notice filing” requirements for a particular state to see what they charge ERAs?
Filing for Exempt Reporting Adviser (ERA) status involves both federal notification (via the SEC) and state-specific “notice filings.”
Since we previously discussed Michigan and Nevada, here are the specific requirements and fees for an ERA to operate in those two states.
1. Nevada ERA Requirements
Nevada is generally considered a “notice filing” state for ERAs. If you have a place of business in Nevada or a certain number of clients, you must notify the state through the IARD (Investment Adviser Registration Depository) system.
- Initial Filing Fee: $300
- Annual Renewal Fee: $300 (due by December 31st each year)
- How to Qualify/File: * You must first file your Form ADV Part 1 with the SEC as an ERA.
- On the same form, you select Nevada as a “notice filing” destination.
- The fee is deducted automatically from your firm’s IARD account.
- Exemption Limit: Generally, if you have no place of business in Nevada and fewer than 5 clients in the state, you may not be required to notice file (this is known as the “de minimis” rule).
2. Michigan ERA Requirements
Michigan also requires ERAs to notice file if they meet the threshold for conducting business in the state.
- Initial Filing Fee: $200 (Note: Legislative changes scheduled for late 2027 may lower this to $150).
- Annual Renewal Fee: $200
- How to Qualify/File:
- Like Nevada, this is handled through the IARD system.
- You must submit an executed Form ADV and pay the fee through the electronic depository.
- Key Distinction: Michigan law (under the Uniform Securities Act) requires “federal covered advisers” to file a notice if they have a place of business in Michigan or more than 5 non-institutional clients in the state.
Standard Costs (Federal & Systems)
In addition to the state-specific fees above, every ERA must pay the following to the IARD/FINRA to maintain their account:
- Initial IARD Setup Fee: $150 (one-time fee for ERAs).
- Annual IARD System Fee: $0 (Currently, the annual system fee is waived for ERAs, though this is subject to change by the SEC).
Summary Table
| State | Initial Fee | Annual Fee | System Used |
|---|---|---|---|
| Nevada | $300 | $300 | IARD / FINRA |
| Michigan | $200 | $200 | IARD / FINRA |
| Federal (SEC) | $150 | $0 | IARD / FINRA |