Assets under management (AUM) is the total market value of assets an advisor or firm manages on behalf of its clients. As an individual investor, your AUM is the amount you have invested. Investors may use AUM to evaluate the quality of a firm; advisors may use it to set their fees.
How to calculate assets under management (AUM)
For individuals
Assets under management (AUM) is the total market value of a person or firm’s invested assets. Those assets may include:
For investment firms
A firm’s AUM is the aggregate market value of the total assets they manage for their entire pool of investors. That means an advisor’s AUM could be based on many clients with small investments, or a few clients with large investments — or a mix of the two.
🤓Nerdy Tip
AUM is the market value of the investments. That means it can fluctuate based on market conditions.
Why AUM matters
Generally, investors, investment advisors and regulatory agencies use AUM in three ways.
1. Evaluating an advisor
Investors looking for an experienced and stable financial advisor may consider assets under management in the evaluation process. A high AUM may (or may not) be one indicator of a solid advisor.
AUM isn’t the only or best metric for choosing a financial advisor; there are other things to consider to evaluate the quality of an advisor:
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Long firm history: A firm that’s been around for awhile and has a large client base could have the experience and stability you’re looking for, even if its AUM is lower.
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Low client-to-advisor ratio: Generally, firms with a lower client-to-adviser ratio could provide more individualized attention. A high ratio may mean the firm is more focused on bringing in business than giving you personalized advice.
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Fee-only structure: A fee-only financial advisor is generally preferred over one who receives a commission for recommending certain financial products, which introduces a conflict of interest.
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Credentials: “Financial advisor” is a generic term, so double-check whether the advisor is a certified financial planner and is legally allowed to offer investment advice.
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Fiduciary duty: Fiduciaries are obligated to act in your best interest.
This information, including a firm’s AUM, is in the firm’s Form ADV, which is a disclosure document that investment advisors must file with the U.S. Securities and Exchange Commission and state securities authorities.
2. Setting advisor fees
Advisor fees are often a percentage of the investor’s AUM. The percentage can range from 0.25% per year for a robo-adviser to 2% per year for a fee-only advisor. So, for example, if your assets under management are $100,000, your fees may be:
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$125 a year with a robo-advisor.
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$1,050 a year with a human advisor.
Generally, the percentage decreases for investors with more investable assets.
3. Regulating investment advisors
An investment advisor or firm’s AUM helps determine whether they must register with a state regulatory authority or with the U.S. Securities and Exchange Commission. Firms with less than $100 million in AUM generally are under state authority; those with $100 million or more in AUM must register with the SEC. There are some exceptions.