If you cross $150 million in regulatory AUM or your exemption eligibility changes, you will need to transition from ERA to RIA status. The transition involves filing requirements, compliance buildout, and operational changes. Planning ahead makes the process significantly smoother.
When Transition Is Required
The most common trigger is crossing $150 million in regulatory AUM while relying on the private fund adviser exemption. You have until June 30 of the calendar year following the year you crossed the threshold.
Other triggers include advising a non-fund client (a separate account or family office that is not structured as a fund), losing your VC fund adviser exemption because a fund no longer meets the qualifying criteria, or voluntarily choosing to register.
The Filing Changes
Your Form ADV expands significantly. You will complete all items in Part 1A (not just the ERA subset), prepare Part 2A (the firm brochure), and prepare Part 2B (brochure supplements for key advisory personnel). If you have retail-type clients, you may also need Part 3 (Form CRS).
Part 2A is the most labor-intensive new requirement. It is a narrative document covering your advisory services, fee structures, investment strategies, methods of analysis, risk factors, disciplinary information, and conflicts of interest. Think of it as a PPM for your advisory firm rather than for a specific fund.
Compliance Buildout
RIA registration triggers compliance obligations that ERAs do not have:
Written compliance policies and procedures. You need a compliance manual tailored to your firm's activities, covering areas like trading, allocation, valuation, conflicts, and recordkeeping.
Chief Compliance Officer. You must designate a CCO responsible for administering the compliance program. At smaller firms, this is often a principal wearing a second hat.
Code of ethics. A written code governing personal securities trading by firm personnel, including reporting requirements and pre-clearance procedures.
Books and records. RIAs must maintain specific records for defined retention periods. Many of these records overlap with what a well-run fund already keeps, but the specific requirements are more detailed.
Custody compliance. Private fund advisers typically satisfy the custody rule through annual audited financial statements for each fund. Confirm your audit arrangements are in place.
Marketing rule compliance. The SEC's marketing rule governs how RIAs advertise, including the use of performance data, testimonials, and endorsements.
Timeline for Transition
If you know the transition is coming, start 6 to 12 months in advance. Drafting a compliance manual, preparing Part 2A, and setting up compliance infrastructure takes time. Rushing it leads to gaps that create risk during your first SEC examination.
A practical timeline:
- 12 months out: Begin drafting compliance policies and Part 2A
- 6 months out: Finalize policies, train staff, designate CCO
- 3 months out: Complete Part 2A and Part 2B, prepare filing
- Filing deadline: Submit complete Form ADV and transition from ERA to RIA
State Implications
Transitioning to RIA status may change your state filing obligations. Some states treat ERAs and RIAs differently for notice filing purposes. Review your state registrations as part of the transition.
How Capital Company Helps
Capital Company prepares and files Form D, blue sky filings, and Form ADV for funds on the platform. Schedule a demo to learn more.
This article is for informational purposes only and does not constitute legal advice. Consult qualified legal counsel for advice specific to your situation.