The Role and Obligations of an Exempt Reporting Adviser
The Role and Obligations of an Exempt Reporting Adviser
Jan 11
Written By Jeff Wenzel
ERAs must complete sections of the Form ADV, providing identifying information, financial industry affiliations, and disclosure information. They also need to establish written policies and procedures to prevent the misuse of material nonpublic information and comply with the “pay to play” rule of the Advisers Act. While ERAs are exempt from SEC registration, they still have reporting obligations and must file reports on Form ADV, which is publicly available through the Investment Adviser Registration Depository (IARD).
With over 5,000 ERAs in the United States, it is essential for them to meet the requirements of the Private Fund Adviser Exemption or the Venture Capital Adviser Exemption. Maintaining ERA status is generally less expensive than being a registered investment adviser, and services like AngelList can help fund managers meet exemption requirements. Overall, ERAs play a crucial role in the investment advisory industry while fulfilling their obligations to provide transparency and protect investors.
Key Takeaways:
- The Dodd-Frank Act expanded registration requirements for investment advisers, leading to the creation of Exempt Reporting Advisers (ERAs).
- ERAs are investment advisers who rely on exemptions from registering with the SEC under specific sections of the Investment Advisers Act of 1940.
- ERAs have reporting, recordkeeping, and other obligations, including completing the Form ADV and filing reports.
- ERAs can rely on the Private Fund Adviser Exemption or the Venture Capital Adviser Exemption to qualify for exemption from SEC registration.
- Maintaining ERA status is generally less expensive than being a registered investment adviser.
What is an Exempt Reporting Adviser?
Definition
In the world of investment advisers, there’s a special category known as Exempt Reporting Advisers (ERAs). These advisers rely on exemptions from registering with the Securities and Exchange Commission (SEC) under specific sections of the Investment Advisers Act of 1940. The creation of ERAs was a result of the expansion of registration requirements for investment advisers in the United States through the Dodd-Frank Act.
Creation
ERAs were established as a means to accommodate investment advisers who fall within certain asset management thresholds. Depending on the amount of assets under management, advisers have different registration requirements. For instance, advisers with assets between $0 and $25 million must register with the relevant state regulatory authority. Those with assets between $25 million and $100 million are also required to register with the state authority. However, investment advisers with assets over $100 million must register with the SEC.
Interestingly, large advisers that qualify as either a Venture Capital Fund Adviser or Private Fund Adviser have the option to be treated as an ERA. This provides them with certain advantages and exemptions.
Registration Requirements
Although ERAs are exempt from SEC registration, they still have reporting, recordkeeping, and other obligations that they must fulfill. To comply with these requirements, ERAs need to complete various sections of the Form ADV, which includes providing identifying information, financial industry affiliations, and disclosure information.
Additionally, ERAs must file the Form ADV-NR on paper to appoint the Secretary of the SEC as an agent for service of process. However, they can complete the necessary sections of the Form ADV Part 1 online through the Investment Adviser Registration Depository (IARD).
It’s crucial for ERAs to update their Form ADV Part 1 annually and maintain records as required by the SEC. This includes establishing written policies and procedures to prevent the misuse of material nonpublic information and complying with the “pay to play” rule of the Advisers Act.
The information filed by ERAs on Form ADV is publicly available through the IARD. Furthermore, ERAs must file reports on Form ADV, providing specified information. Usually, Form ADV must be filed electronically with the IARD, unless a hardship exemption is granted. A filing fee is required for the completed Form ADV to be accepted.
In case of unanticipated technical difficulties preventing electronic filing, ERAs can request a temporary hardship exemption. This exemption allows them to continue their operations while resolving the filing issue. However, a final report must be filed when an exempt reporting adviser ceases operation, no longer meets the definition of an exempt reporting adviser, or applies for registration with the SEC.
Various state regulations also provide exemptions for investment advisers to private funds. ERAs fall under this category if they are managing qualifying venture capital funds or private fund assets of less than $150 million. While ERAs are exempt from SEC registration, they still have reporting obligations to fulfill.
To qualify as a venture capital fund and rely on the venture capital adviser exemption, ERAs must meet certain criteria. For example, they should not invest in other funds or public companies.
In summary, ERAs play a vital role in the investment advisory landscape, providing exemptions for certain advisers while still maintaining reporting obligations. With over 5,000 ERAs in the United States, these advisers rely on the Private Fund Adviser Exemption or the Venture Capital Adviser Exemption to fulfill their fiduciary obligations, avoid conflicts of interest, and comply with regulatory requirements. While maintaining ERA status is generally less expensive than being a registered investment adviser, it is still crucial for ERAs to have anti-money laundering programs in place and maintain records similar to registered investment advisers.
Reporting and Recordkeeping Obligations of an Exempt Reporting Adviser
As an Exempt Reporting Adviser (ERA), there are certain reporting and recordkeeping obligations that you must fulfill. These obligations ensure transparency and accountability in the investment advisory industry. In this section, we will discuss the key requirements for ERAs, including Form ADV, financial industry affiliations, and disclosure information.
Form ADV
The Form ADV is a critical document that ERAs must complete to provide essential information about their firm and operations. This form consists of several sections that must be filled out accurately and updated annually. Some of the information required in Form ADV includes identifying details of the ERA, such as its name, address, and contact information.
Financial Industry Affiliations
ERAs must disclose any financial industry affiliations they have. This includes information about any other investment advisory firms or financial institutions they are associated with. This disclosure is crucial to ensure transparency and to identify any potential conflicts of interest.
Disclosure Information
ERAs are required to provide disclosure information to their clients. This information includes details about the ERA’s business practices, investment strategies, and potential risks associated with their services. This disclosure ensures that clients are fully informed and can make educated decisions about their investments.
It is important to note that ERAs must establish written policies and procedures to prevent the misuse of material nonpublic information. This helps protect the interests of clients and maintains the integrity of the financial markets.
ERAs also need to comply with the “pay to play” rule of the Advisers Act. This rule prohibits ERAs from engaging in certain political contributions to government officials in exchange for obtaining or retaining advisory business.
Additionally, information filed by ERAs on Form ADV is publicly available through the Investment Adviser Registration Depository (IARD). This allows investors and regulatory authorities to access information about ERAs and make informed decisions.
ERAs must file reports on Form ADV, providing specified information. The form must be filed electronically with the IARD, unless a hardship exemption is granted. A filing fee is required for the completed Form ADV to be accepted.
In case of unanticipated technical difficulties preventing electronic filing, ERAs can request a temporary hardship exemption. This exemption allows for the filing to be done on paper instead of electronically.
Finally, when an ERA ceases operations, no longer meets the definition of an ERA, or applies for registration with the SEC, a final report must be filed. This ensures that all relevant information is properly documented and reported.
In conclusion, ERAs have reporting and recordkeeping obligations that they must fulfill to comply with regulatory requirements. These obligations include completing Form ADV, providing financial industry affiliations, and disclosing relevant information to clients. By fulfilling these obligations, ERAs contribute to the transparency and integrity of the investment advisory industry.
(Citation: Jones Day)
Filing Process for Exempt Reporting Advisers
As an Exempt Reporting Adviser (ERA), understanding the filing process is crucial to ensure compliance with the Securities and Exchange Commission (SEC) regulations. ERAs are investment advisers who rely on exemptions from registering with the SEC under specific sections of the Investment Advisers Act of 1940. Let’s take a closer look at the filing process for ERAs.
Paper Filing of Form ADV-NR
One important aspect of the filing process for ERAs is the completion and submission of Form ADV-NR. ERAs must file this form on paper to appoint the Secretary of the SEC as an agent for service of process. The Form ADV-NR includes various sections that ERAs need to complete, including providing identifying information, financial industry affiliations, and disclosure information. It is essential for ERAs to accurately and thoroughly fill out this form to meet their reporting obligations.
Online Filing through IARD
In addition to filing the Form ADV-NR on paper, ERAs can also take advantage of the option to file certain sections of the Form ADV Part 1 online through the Investment Adviser Registration Depository (IARD). This online filing system streamlines the process for ERAs, allowing them to complete the necessary sections electronically. ERAs should ensure that they update their Form ADV Part 1 annually and maintain records as required by the SEC.
Recordkeeping and Compliance Obligations
ERAs have various reporting, recordkeeping, and compliance obligations that they must fulfill. It is essential for ERAs to establish written policies and procedures to prevent the misuse of material nonpublic information. Additionally, ERAs must comply with the “pay to play” rule of the Advisers Act and maintain records similar to registered investment advisers. These records should be retained for at least five years.
Exemptions and Qualifications
ERAs can rely on exemptions provided by the SEC, such as the Private Fund Adviser Exemption or the Venture Capital Adviser Exemption. To qualify as a venture capital fund and rely on the venture capital adviser exemption, ERAs must meet specific criteria, such as not investing in other funds or public companies. ERAs must complete an exempt reporting adviser filing with the SEC within 60 days of claiming the exemption and update it annually.
Conclusion
Understanding the filing process for ERAs is essential to ensure compliance with SEC regulations. Paper filing of Form ADV-NR and online filing through IARD are two options available to ERAs. It is crucial for ERAs to maintain records, establish policies and procedures, and comply with the applicable rules and regulations. By fulfilling their obligations and staying up to date with the filing process, ERAs can navigate the regulatory landscape successfully.
Reference: AngelList
Compliance Requirements for Exempt Reporting Advisers
As a writer who has expertise in creating engaging blog posts, I am excited to share valuable information about the compliance requirements for Exempt Reporting Advisers (ERAs). Under the Dodd-Frank Act, investment advisers in the United States are subject to registration requirements, and ERAs were introduced as a result.
Prevention of Insider Trading
One important obligation that ERAs must fulfill is the prevention of insider trading. ERAs are required to establish written policies and procedures to prevent the misuse of material nonpublic information. This means that they must have measures in place to ensure that confidential information is not used for personal gain or to the detriment of their clients.
Pay-to-Play Rule
ERAs also need to comply with the “pay-to-play” rule of the Advisers Act. This rule prohibits ERAs from engaging in certain political contributions in order to influence the awarding of advisory contracts. By adhering to this rule, ERAs can maintain the integrity of the investment advisory profession and avoid conflicts of interest.
Public Availability of Information
Information filed by ERAs on Form ADV is publicly available through the Investment Adviser Registration Depository (IARD). This means that details about an ERA’s business operations, services offered, and any disciplinary actions can be accessed by the public. It is important for ERAs to accurately and transparently complete their Form ADV to provide investors and regulators with the necessary information.
To ensure compliance, ERAs must file reports on Form ADV, providing specified information. The form must be filed electronically with the IARD, unless a hardship exemption is granted. A filing fee is required for the completed Form ADV to be accepted. In case of unanticipated technical difficulties preventing electronic filing, ERAs can request a temporary hardship exemption.
When an exempt reporting adviser ceases operation, no longer meets the definition of an exempt reporting adviser, or applies for registration with the SEC, a final report must be filed. This ensures that the SEC is aware of any changes in an ERA’s status and can take appropriate action if necessary.
It is worth noting that various state regulations also provide exemptions for investment advisers to private funds. ERAs managing qualifying venture capital funds or private fund assets of less than $150 million can rely on these exemptions. While ERAs are exempt from SEC registration, they still have reporting obligations.
In conclusion, compliance requirements for Exempt Reporting Advisers are essential to maintain transparency and integrity in the investment advisory industry. ERAs must fulfill obligations related to insider trading prevention, comply with the pay-to-play rule, and ensure the public availability of information. By adhering to these requirements, ERAs can uphold their fiduciary obligations, avoid conflicts of interest, and provide investors with the necessary information to make informed decisions.
For more detailed information about compliance requirements for ERAs, you can refer to this article by Jones Day.
Exemptions for Investment Advisers to Private Funds
As a result of the Dodd-Frank Act, investment advisers in the United States are subject to expanded registration requirements. This has led to the creation of Exempt Reporting Advisers (ERAs), which are investment advisers who rely on exemptions from registering with the Securities and Exchange Commission (SEC) under specific sections of the Investment Advisers Act of 1940.
Qualifying Venture Capital Funds
One category of ERAs includes those who manage qualifying venture capital funds. To qualify as a venture capital fund and rely on the venture capital adviser exemption, certain criteria must be met. For example, a qualifying venture capital fund should primarily invest in privately held companies and avoid investing in other funds or public companies.
Private Fund Adviser Exemption
Another category of ERAs are those who manage private fund assets of less than $150 million. These ERAs are exempt from SEC registration but still have reporting obligations. They must complete an exempt reporting adviser filing with the SEC within 60 days of claiming the exemption and update it annually.
ERAs, regardless of their specific exemption, have fiduciary obligations and must avoid conflicts of interest. They are prohibited from engaging in “pay-to-play practices,” which involve providing political contributions to obtain business from public entities. While not required, it is recommended for ERAs to have anti-money laundering programs in place.
Reporting and Recordkeeping Obligations
ERAs have reporting, recordkeeping, and other obligations that they must fulfill. They need to complete various sections of the Form ADV, a comprehensive disclosure document, which includes providing identifying information, financial industry affiliations, and disclosure information. ERAs must also file the Form ADV-NR on paper to appoint the Secretary of the SEC as an agent for service of process.
To streamline the filing process, ERAs can complete the necessary sections of the Form ADV Part 1 online through the Investment Adviser Registration Depository (IARD). This electronic filing system allows for efficient and secure submission of the required information. However, a filing fee is required for the completed Form ADV to be accepted.
ERAs must update their Form ADV Part 1 annually and maintain records as required by the SEC. These records should be retained for at least five years. Information filed by ERAs on Form ADV is publicly available through the IARD, providing transparency to investors and regulators.
Benefits of Exempt Reporting Adviser Status
Maintaining ERA status is generally less expensive than being a registered investment adviser. This can be advantageous for smaller investment advisers who meet the qualifications for exemption. It allows them to focus on their core business activities without the additional regulatory burdens associated with full SEC registration.
Conclusion
Exempt Reporting Advisers play a significant role in the investment advisory industry, particularly for those managing qualifying venture capital funds or private fund assets below a certain threshold. By relying on specific exemptions, these advisers fulfill their reporting obligations while benefiting from a streamlined regulatory process. As the investment landscape evolves, it is essential for ERAs to stay updated on the requirements and maintain compliance to ensure the best interests of their clients and the integrity of the financial markets.
Research citation: 17 CFR § 275.204–4 — Exemption for advisers to venture capital funds
Qualifying as a Venture Capital Fund
Venture capital funds play a crucial role in fostering innovation and supporting the growth of promising startups. In the United States, the Dodd-Frank Act introduced new registration requirements for investment advisers, leading to the creation of Exempt Reporting Advisers (ERAs). ERAs are investment advisers who rely on specific exemptions from registering with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940.
Criteria for Exemption
To qualify as an ERA and benefit from the exemptions, investment advisers must meet certain criteria. For instance, investment advisers with assets under management between $0 and $25 million must register with the relevant state regulatory authority. Those with assets between $25 million and $100 million must also register with the state authority. However, investment advisers with assets over $100 million must register directly with the SEC.
Large advisers that qualify as either a Venture Capital Fund Adviser or Private Fund Adviser have the option to be treated as an ERA. This allows them to take advantage of the exemptions while still fulfilling reporting, recordkeeping, and other obligations.
Fiduciary Obligations
As ERAs, investment advisers have fiduciary obligations to their clients. They are required to act in their clients’ best interests, avoid conflicts of interest, and provide full and fair disclosure of all material facts. This ensures that investors are protected and can make informed decisions regarding their investments.
Anti-Money Laundering Programs
While not explicitly required, it is highly recommended for ERAs to have anti-money laundering (AML) programs in place. These programs help prevent the misuse of funds and ensure compliance with regulations aimed at combating money laundering and terrorist financing. By implementing robust AML policies and procedures, ERAs can demonstrate their commitment to maintaining a secure and transparent investment environment.
In conclusion, qualifying as a Venture Capital Fund Adviser and relying on the venture capital adviser exemption allows investment advisers to navigate the regulatory landscape more efficiently. By meeting the criteria for exemption, fulfilling fiduciary obligations, and considering the implementation of anti-money laundering programs, ERAs can operate within the confines of the law while focusing on supporting the growth of innovative startups.
To learn more about the specific requirements and obligations of ERAs, you can refer to the Securities and Exchange Commission’s website.
Benefits of Being an Exempt Reporting Adviser
As an investment adviser, navigating the complex landscape of registration requirements can be a daunting task. However, the creation of Exempt Reporting Advisers (ERAs) under the Dodd-Frank Act has provided a valuable alternative for investment advisers to consider. In this section, we will explore the benefits of being an ERA, including cost effectiveness and assistance from AngelList.
Cost Effectiveness
One of the primary advantages of being an ERA is the cost effectiveness it offers compared to being a registered investment adviser. The registration requirements for investment advisers with assets under management between $0 and $25 million vary depending on the state regulatory authority. In some cases, advisers within this range may only need to register with the relevant state authority. By qualifying as an ERA, these advisers can avoid the more extensive registration process with the Securities and Exchange Commission (SEC), which can be both time-consuming and expensive.
Even for advisers with assets between $25 million and $100 million, who are required to register with the state authority and the SEC, opting to be treated as an ERA can still provide cost savings. By meeting the criteria to qualify as either a Venture Capital Fund Adviser or Private Fund Adviser, these larger advisers can choose to be treated as ERAs and avoid some of the more stringent reporting and recordkeeping obligations that come with SEC registration.
Assistance from AngelList
When it comes to meeting the exemption requirements for ERAs, fund managers can turn to AngelList for assistance. AngelList offers a range of services tailored specifically for ERAs, helping them navigate the complexities of the exemption process. Whether it’s completing the necessary filings, updating annual reports, or understanding the fiduciary obligations and compliance requirements, AngelList provides valuable support to ensure that ERAs can maintain their exempt status.
By leveraging the expertise and resources offered by AngelList, fund managers can focus on their core investment activities while ensuring they meet all the necessary regulatory obligations. This partnership between ERAs and AngelList exemplifies the collaborative efforts within the investment advisory industry to streamline processes and provide practical solutions for exempt reporting advisers.
In conclusion, being an Exempt Reporting Adviser brings several benefits to investment advisers, including cost effectiveness and assistance from platforms like AngelList. By carefully considering the qualifications and requirements for ERAs, investment advisers can make informed decisions that align with their business objectives and regulatory obligations. Whether it’s reducing registration costs or leveraging specialized support services, ERAs have the opportunity to navigate the regulatory landscape more efficiently and focus on delivering value to their clients.
Click here to learn more about the requirements for Exempt Reporting Advisers.
Frequently Asked Questions
What is an Exempt Reporting Adviser (ERA)?
ERAs are investment advisers who rely on exemptions from registering with the Securities and Exchange Commission (SEC) under specific sections of the Investment Advisers Act of 1940. The Dodd-Frank Act expanded the registration requirements for investment advisers in the United States, leading to the creation of ERAs.
How do the registration requirements for investment advisers vary based on assets under management?
- Investment advisers with assets under management between $0 and $25 million must register with the relevant state regulatory authority.
- Investment advisers with assets between $25 million and $100 million must register with the state authority and the SEC.
- Investment advisers with assets over $100 million must register with the SEC.
Can large advisers choose to be treated as ERAs?
Yes, large advisers that qualify as either a Venture Capital Fund Adviser or Private Fund Adviser can choose to be treated as ERAs.
What obligations do ERAs have?
ERAs have reporting, recordkeeping, and other obligations that they must fulfill. They need to complete various sections of the Form ADV, establish written policies and procedures to prevent the misuse of material nonpublic information, and comply with the “pay to play” rule of the Advisers Act.
How can ERAs complete the necessary sections of the Form ADV?
ERAs can complete the necessary sections of the Form ADV Part 1 online through the Investment Adviser Registration Depository (IARD). However, they must file the Form ADV-NR on paper to appoint the Secretary of the SEC as an agent for service of process.
How often do ERAs need to update their Form ADV?
ERAs must update their Form ADV Part 1 annually and maintain records as required by the SEC.
Is the information filed by ERAs on Form ADV publicly available?
Yes, information filed by ERAs on Form ADV is publicly available through the IARD.
How should ERAs file reports on Form ADV?
ERAs must file reports on Form ADV, providing specified information. Form ADV must be filed electronically with the Investment Adviser Registration Depository (IARD), unless a hardship exemption is granted. A filing fee is required for the completed Form ADV to be accepted.
What happens when an exempt reporting adviser ceases operation or no longer meets the definition of an exempt reporting adviser?
A final report must be filed when an exempt reporting adviser ceases operation, no longer meets the definition of an exempt reporting adviser, or applies for registration with the SEC.
What exemptions do state regulations provide for investment advisers to private funds?
Various state regulations provide exemptions for investment advisers to private funds.
How many ERAs are there in the United States?
There are over 5,000 ERAs in the United States.
What exemptions can ERAs rely on?
ERAs can rely on the Private Fund Adviser Exemption or the Venture Capital Adviser Exemption.
What are the requirements to qualify as a venture capital fund and rely on the venture capital adviser exemption?
To qualify as a venture capital fund and rely on the venture capital adviser exemption, certain criteria must be met. For example, the fund should not invest in other funds or public companies.
What filing requirements do ERAs have?
ERAs must complete an exempt reporting adviser filing with the SEC within 60 days of claiming the exemption and update it annually.
What obligations do ERAs have in terms of fiduciary duties and conflicts of interest?
ERAs have fiduciary obligations, must avoid conflicts of interest, and are prohibited from engaging in “pay-to-play practices.”
Is it recommended for ERAs to have anti-money laundering programs?
While not required, it is recommended for ERAs to have anti-money laundering programs in place.
How long should ERAs retain their records?
ERAs should maintain records similar to registered investment advisers and retain them for at least five years.
Is maintaining ERA status less expensive than being a registered investment adviser?
Yes, maintaining ERA status is generally less expensive than being a registered investment adviser.
Can AngelList help fund managers meet exemption requirements for ERAs?
Yes, AngelList offers services to help fund managers meet exemption requirements for ERAs.
