ERA vs RIA: When Private Fund Managers Should Make the Switch

For many emerging fund managers, exempt reporting adviser (“ERA”) status is the best starting point. However, many fund managers mistakenly assume they should start off as a registered investment adviser (“RIA”) or should remain an ERA even after their activities and strategies change. The question first arises at Fund I, but it’s a recurring question as the sponsor grows and launches future funds. Our response varies depending on the circumstances, such as when an institutional investor wants to discuss separately managed accounts or assets are approaching the federal threshold.

The decision between remaining an ERA and becoming an RIA should be made with your fund’s vision in mind and with an understanding of the compliance obligations that follow. Here’s what you should know:

When ERA Status Works

The private fund adviser exemption generally allows an adviser that solely advises private funds and manages less than $150 million in private fund assets in the United States to avoid registration with the SEC. Venture capital fund advisers may qualify under a separate exemption. For a manager operating one or two smaller private funds, this can be an efficient regulatory structure that avoids many of the compliance burdens that come with RIA status.

For example, consider a sponsor managing a $40 million Fund I and preparing a $60 million Fund II where both vehicles are private funds, the manager has no separately managed accounts, and no plans to provide investment advice directly to clients. Assuming the adviser otherwise satisfies the exemption and applicable state requirements, there may be little reason to build the infrastructure of an SEC registered adviser.

Importantly, “exempt” does not mean unregulated. Although ERA status is far less burdensome from a compliance standpoint, ERAs may still need to file a portion of Form ADV, must keep those filings current, remain subject to federal antifraud requirements, and must analyze state law requirements. Recently, on August 27, 2026, the SEC put ERA status in an unusual spotlight when it charged 38 entities that allegedly submitted materially false Forms ADV to portray themselves as legitimate U.S. advisory firms. According to the SEC, the filings included nonexistent business locations, disconnected or unrelated phone numbers, suspiciously similar ownership and fund information and purported fund auditors that could not be found in public accountancy registries. Certain defendants were also allegedly marketing through websites displaying fake certificates suggesting they were SEC registered. The alleged conduct is extreme, but the compliance lesson for legitimate managers is simple: an ERA filing is not SEC registration, and SEC registration is not SEC approval. Ultimately, fund managers must ensure they maintain ERA status with accurate information, or become an RIA and comply with the RIA requirements.

What RIA Status Requires

Becoming an RIA changes the compliance obligations of the management company in a meaningful way. Depending on applicable state law, individuals acting as investment adviser representatives of the firm may need to satisfy the Series 65 exam (or qualify for a waiver based on certain professional designations). Once registered, the adviser must file Form ADV (including Part 2, whereas ERAs complete only specified items of Part 1A), and keep its disclosures current as the business evolves. Additionally, RIA status requires the following:

• Adoption and implementation of written compliance polices and procedures,
• Maintenance of books and records as required by the Advisers Act,
• Adoption of a code of ethics addressing employee conduct and personal securities trading,
• Compliance with the SEC’s Marketing Rule,
• Appointment of a chief compliance officer,
• Complete annual compliance reviews,
• Filing of Form PF if the adviser crosses the applicable private fund reporting threshold,
• Adoption of policies addressing the pay-to-play rule restricting political contributions,
• Adoption of proxy voting policies and procedures,
• Adoption of privacy policies and safeguards under Regulation S-P,
• Adoption of insider trading policies addressing material nonpublic information,
• Implementation of business continuity and cybersecurity procedures,
• Satisfaction of the custody rule, including the annual audited financial statement approach commonly used by private fund advisers, and
• Entry into written advisory agreements addressing fees, assignment consent, and related terms.

Further, unlike an ERA, an RIA operates with the expectation that the SEC can examine whether what the firm is doing in practice matches what its Form ADV and compliance policies say it does. Registration requires the management company to build, document, and consistently follow a compliance program that reflects how the business actually operates.

A Practical Framework for the Decision Between ERA and RIA

For an emerging fund manager, we generally consider the decision between ERA and RIA in three categories:

1. Remain an ERA when the manager continues to fit comfortably within an available exemption, expects to advise only qualifying private funds, and does not have a compelling business reason to assume the additional infrastructure and cost of registration.

2. Begin preparing for registration when the numbers or business plan suggest the exemption may no longer be available within the next 6-12 months. A larger Fund II or Fund III, rapidly increasing AUM, a contemplated SMA, a new strategy, or increased institutional capital raises can all justify starting the work before registration is required.

3. Register when required, or when eligible and the business supports it. By that point, registration should be the culmination of the manager’s institutional development rather than the event that starts it.

Our securities team works with emerging and lower-middle market managers throughout that progression, from evaluating ERA eligibility and preparing Form ADV filings to planning for SEC registration and building compliance programs that can grow with the advisory business. Contact us to ensure your regulatory framework keeps pace with your business and prepare before the next stage of growth makes the decision for you.