Assets Under Management (AUM)

In the world of finance, you’ll likely run into the term, “assets under management,” or AUM for short. This refers to the total market value of the assets a bank, mutual fund, advisor, or brokerage manages on behalf of clients or investors. Financial institutions usually want to increase this number, and some may use it as a means of charging you.

Understanding AUM is important if you plan on investing in funds or working with a financial advisor. In the context of the latter, many will charge you based on the total value of your assets. This article will explain how this concept works, as well as how it may factor into advisor fee structures.

Definition of Assets Under Management

AUM is a metric that tracks the total market value of the assets a financial institution, such as a mutual fund or advisory firm, manages. All securities a firm owns or manages are included in the calculation. For example, if you own shares in a REIT or an index fund and an advisory firm is helping you manage it, this counts toward its AUM. Companies also use it to measure how successful or large they’re becoming, as well as to market to clients/investors. The larger the number, the more prosperous the company.

With financial advisory firms, their AUM represents the total value of the assets of all of the clients they manage on behalf of their clients. Typically, the more securities one has under management, the more successful they are. Professionals will often charge you a percentage of the AUM, which can hover around 1 or 2%, depending on how much you have.

Importance of AUM

AUM serves as a crucial measuring stick for financial institutions, such as advisory firms, banks, and funds. It signifies the size and prosperity of a firm, as well as the clients/investors they serve. For this reason, the metric can be a marketing angle to create trust and rapport with income customers.

In the context of the financial advisor industry, AUM has a couple of different uses. First, if a firm reaches north of $100 million AUM, it must register with the U.S. Securities and Exchange Commission as a Registered Investment Advisor (RIA). This requires the firm and all of its employees to follow certain standards and regulations, such as being a fiduciary.

AUM is also one of the main methods advisors use to calculate fees. Typically, you’ll pay around 1 to 2% of AUM, depending on how much you have. If you have more for a professional to manage, the percentage generally goes down.

For other types of financial institutions, such as mutual funds, AUM is important for other reasons beyond just marketing and performance measurement. It may allow a firm to have more resources to diversify, as well as find better deals that it may not have access to otherwise. It also allows institutions to sustain themselves over long periods because they have consistent revenue.

How AUM Calculations Works

AUM is equal to the total market value of all assets a firm is managing at a given time. However, depending on the financial institution, the calculation method can vary. Part of this is that some firms may not consider some types of assets as “under management,” whereas others might. Typically, the following assets may be considered as part of the calculation by companies:

• Stocks
• Bonds
• Real estate
• Private equities
• Mutual funds
• ETFs
• Cash and cash equivalents

Despite the varying methods, companies generally compute the total value by considering capital contributed by investors/clients, as well as any funds it has on hand from the owners. As an example, let’s say an advisory firm has $50 million to manage on behalf of its clients, as well as $25 million on hand from its principal owners. This would mean AUM is $75 million.

AUM Financial Advisor Fees

Advisors use AUM as a way to compete with other firms, as well as a way to calculate your fees. When you hire a finance professional to help manage your money, they may charge you a percentage of the value of your assets. As you might’ve seen above, this amount hangs around 1 to 2%, depending on how much you have. The more a firm manages, the smaller the percentage will be.

Commonly, wealth and investment managers charge this way. However, if you’re hiring a financial advisor for a smaller project or general planning purposes, they’re much less likely to use AUM fees. Rather, they may charge hourly, with a retainer, or simply a flat fee for their services.

Net Asset Value (NAV) vs. AUM

Another term you may see is net asset value (NAV). This is very similar to AUM; however, it factors in the liabilities of an entity, such as a fund or advisory firm. For the most part, NAV will appear when you go to buy shares of a mutual fund or ETF, rather than the latter.

Assets Under Advisement (AUA) vs. AUM

Assets under advisement (AUA) is a similar term to AUM, but it’s a bit different in function. It refers to the total value of all the assets a company is advising and managing for clients. The latter, on the other hand, also includes funds that a firm owns.

AUM is effective at signifying both the financial health and size of the company, as well as the portfolios of its clients. AUA only indicates data about the clients, which can be limiting at times.

Frequently Asked Questions

What are regulatory assets under management?

Per the SEC’s Form ADV, regulatory assets under management (RAUM) refer to “securities portfolios” in which an investment advisor gives constant, regular “supervisory or management services” to. A securities portfolio has at least 50% invested into various securities, such as stocks, bonds, and mutual funds.

As an advisory firm registers as an RIA with the SEC, it must report its RAUM. Firms must calculate it by only including assets that they provide regular supervisory services to, as all others won’t apply in this context.

Why does AUM matter to clients?

AUM is important to clients because it indicates how well a company or fund is performing. And, after an advisory firm reaches $100 million in the metric, it must register with the SEC as an RIA. So, if you see a company with this total or higher, you can rest assured that they must follow strict federal and, potentially, state standards.

What company has the most assets under management?

BlackRock, an asset management firm, has the most AUM in the world with ~$9.425 billion. Vanguard and Fidelity are in second and third place with ~$7.25 billion and ~$3.88 billion respectively.

What percentage of assets under management do advisors charge?

Typically, professionals charge anywhere from 1 to 2% of AUM. However, the exact percentage depends on how much you have for them to manage. More money usually means a smaller percentage for you to pay.

How do you calculate AUM?

AUM equates to the total market value of the assets a firm or fund manages on behalf of investors/clients. This includes various securities such as stocks, bonds, real estate, mutual funds, ETFs, and more. Generally, a company will also factor in its capital on hand via its principal owners.

Keep in mind that AUM may vary from company to company. This is due to each having different considerations when it comes to whether they count a type of asset toward the total.