Part of our regulatory series: This article covers the Investment Advisers Act. Also read about the Securities Act (fundraising rules) and Investment Company Act (fund structure).
The Simple Question
Alex’s Investment Tips
Let’s say you’re really good at spotting trades. Friends ask for your take, your calls do well, and now you’re thinking: what if I charge for this? Maybe a paid Substack with weekly stock ideas, a private Discord for model portfolios, or even launching a small pooled fund and taking “2 and 20.”
At what point are you an investment adviser who needs to register?
If you’re in the business of providing securities advice for compensation, the Investment Advisers Act likely applies. Many emerging hedge fund managers start under the private fund adviser exemptionand file as Exempt Reporting Advisers (ERAs) while they scale.
The Advisers Act governs the business of giving investment advice for compensation. Registration brings a full framework of policies, exams, and reporting. The ERA route keeps you exempt from registration while still binding you to anti-fraud and certain federal and state requirements.
When Are You an “Investment Adviser”?
Similar to how the ’40 Act defines “investment company,” the Advisers Act focuses on what you do. You’re generally an investment adviser if all three of the following are true:
Advice About Securities
You provide advice, reports, or analysis concerning securities (e.g., stocks, bonds, funds) — directly to clients or broadly through publications, models, or feeds.
For Compensation
You receive any economic benefit for that advice — management or performance fees, salaries, subscription payments, revenue share, carried interest, or other consideration.
As Part of a Business
Providing that advice is done with regularity, you hold yourself out to the public (site, deck, socials), or it’s reasonably integral to your commercial activity (e.g., running a fund).
Result:
If these three elements are present, you’re an investment adviser under the Advisers Act unless an exclusion or exemption applies.
Common Exclusions / carve-outs (high level)
- Publishers of bona fide, general and regular publications (impersonal, disinterested analysis)
- Lawyers & accountants whose advice is solely incidental to their practice and who charge no special advisory comp
- Brokers/dealers giving advice that’s solely incidental to brokerage and receiving no special compensation
- Banks and certain other categories specified by statute/rule
Separate from these exclusions, many private fund managers rely on the private fund adviser exemptionand file as ERAs until they register as RIAs. Private funds must also comply with the Investment Company Act structure requirements.
ERA vs. Registered: What’s the Difference?
Exempt Reporting Adviser (ERA)
- • Rely on the private fund adviser exemption (Rule 203(m)-1)
- • < $150M in U.S. private-fund AUM
- • Advise only private funds (e.g., 3(c)(1))
- • File Form ADV Part 1A (ERA) “lite” within 60 days; update annually
- • Subject to federal anti-fraud (incl. Rule 206(4)-8) and pay-to-play (Rule 206(4)-5)
SEC-Registered Investment Adviser (RIA)
- • Generally at $100M+ RAUM (with switching buffers)
- • Full compliance program (policies, CCO, code of ethics)
- • Marketing Rule applies to ads and performance
- • Custody Rule can apply (qualified custodian; surprise exam)
- • Form PF obligations for private fund advisers
Scope
Hedgia supports hedge funds relying on Section 3(c)(1) (≤ 100 beneficial owners; no public offering) and operating as ERAs or transitioning to registration. We do not service 3(c)(7) vehicles. See our Investment Company Act guide for more on these exclusions.
What Still Applies When You’re Exempt
Federal Requirements
- • Anti-Fraud (Rule 206(4)-8) — no false or misleading statements to fund investors or prospects
- • Pay-to-Play (Rule 206(4)-5) — political contributions can trigger timeouts even for ERAs
- • Form ADV (ERA) — file within 60 days of relying on the exemption; amend annually and for material changes
- • Books & Records (practical) — maintain substantiation for claims and performance you share
State Layer
- • De minimis client rules (often ≤ 5 clients with no local office) — varies by state
- • Private Fund Adviser (PFA) exemptions — common conditions include notice filings, fees, and annual audit delivery for certain non-VC 3(c)(1) funds
- • IAR Licensing & Continuing Education — many states require Series 65/other qualification and 12 CE credits/year for covered reps
What Typically Does Not Directly Apply to ERAs
- • Marketing Rule (applies to SEC-registered advisers; ERAs still face anti-fraud)
- • Custody Rule (kicks in upon registration if custody triggers exist)
- • Form PF (for registered private fund advisers; not ERAs)
Best practice: align materials with Marketing Rule standards anyway (substantiation, no cherry picking, net-of-fees clarity) to reduce anti-fraud risk and smooth a future transition to registration.
Fundraising: ERA + Reg D in Practice
Rule 506(b)
- • No general solicitation
- • Accredited investors (typical) and up to 35 sophisticated non-accredited with robust disclosures
- • Relationship-based fundraising fits most ERA hedge funds
- • File Form D within 15 days of first sale
Rule 506(c)
- • General solicitation allowed
- • All purchasers must be verified accredited (documented verification)
- • Pairs with private fund status when executed correctly
- • Demands tight controls over materials and recordkeeping
Scope Reminder
Hedgia supports 3(c)(1) hedge funds only. We do not service 3(c)(7) funds. For 3(c)(1), private offering status must be preserved while you choose between 506(b) or 506(c) workflows (detailed in our Securities Act guide).
Federal vs. State: Who Regulates You?
Thresholds & Switching
In general, advisers with $100M+ RAUM register with the SEC (with transition buffers around $90M/$110M). Below that, state registration can apply unless you qualify as an ERA.
As you grow toward $150M U.S. private-fund AUM, plan the timing to register as an RIA and adopt policies (custody, marketing, code of ethics) in advance.
State Exemptions & Filings
- • Many states offer a Private Fund Adviser (PFA) exemption mirroring ERA
- • Conditions often include notice filings, fees, “bad actor” checks, and annual audits to investors for certain non-VC 3(c)(1) funds
- • De minimis exemptions commonly allow a handful of clients with no local office
- • IAR licensing & CE are state matters — confirm Series 65 (or equivalents) and annual CE where adopted
Common Pitfalls for ERA Hedge Funds
✗ Public Marketing Without Controls
If you use 506(c), ensure sales are to verified accredited investors and keep audit-ready records. If you’re using 506(b), keep outreach private and relationship-based.
✗ Sloppy Performance Claims
Anti-fraud applies. Substantiate numbers, present net-of-fees where relevant, avoid cherry picking, and match disclosures to the strategy actually traded.
✗ Pay-to-Play Missteps
Political contributions by covered associates can cause two-year timeouts for public plan business—even for ERAs. Pre-clear and monitor.
✗ Ignoring State Overlays
Missed state notice filings, audit delivery obligations under PFA exemptions, or IAR CE lapses can create avoidable issues.
ERA Compliance in Five Moves
Confirm Eligibility
Only private funds as clients; < $150M U.S. private-fund AUM; rely on Rule 203(m)-1.
File ADV (ERA) & Map States
File within 60 days; plan state notice filings, de minimis usage, and any PFA audit conditions.
Harden Anti-Fraud Controls
Treat decks, websites, DDQs, and PPMs as if the Marketing Rule applied: substantiate, be fair and balanced, and keep records.
Implement Pay-to-Play Pre-Clearance
Track covered associates; pre-clear contributions; document procedures and timeouts.
Plan the RIA Transition
As AUM approaches thresholds, stage policies (custody, code, marketing), vendor readiness (custodian, audit), and Form PF once registered.
Navigating the Advisers Act with Hedgia
The Advisers Act lines are clear, but the overlay is messy. Hedgia helps 3(c)(1) hedge funds operate as ERAs with confidence—and transition to registration smoothly when the time comes.
Built-In ERA Workflows
For ERA Funds
- • ERA eligibility checks & AUM guardrails
- • 3(c)(1) owner-count and look-through prompts
- • 506(b)/(c) fundraising workflows
- • PFA exemption conditions & audit calendaring
For Transitioning RIAs
- • Policy build-out (custody, code, marketing)
- • Vendor readiness (qualified custodian, auditor)
- • Registration packet prep & Form PF (post-registration)
- • Ongoing review and examination readiness
Hedgia helps you keep fundraising compliant today and be registration-ready tomorrow.
Important Legal Disclaimer
This article is for educational and informational purposes only and does not constitute legal, financial, or investment advice.
Securities laws are complex and can change. The examples and explanations here may not fit your specific situation. Before making business decisions, raising capital, or structuring investments, consult qualified professionals.