Assets Under Management (AUM), Explained

An assets under management (AUM) figure tells you the total amount of assets an advisory firm or fund — like an exchange-traded fund (ETF) or mutual fund — manages on behalf of its clients.

A firm’s AUM figure can be valuable in your decision-making process if you’re looking for a financial advisor. Not only can assets under management help you find an advisor you trust, but this figure can also help you estimate the fees you might pay your advisor if you become a client.

What is AUM?

The term “assets under management” refers to the total market value of assets a financial institution or fund manages for its investors or clients. For example:

• A financial advisory firm’s AUM would be the total market value of client funds under continuous and regular management by the firm.
• A mutual fund’s AUM or an ETF’s AUM would be the total sum of investor funds managed by the portfolio manager.

AUM calculation

Assets under management calculations can vary based on the financial institution. For instance, what an advisory firm includes in its AUM may differ from what a mutual fund includes. The assets used in calculating AUM can include:

• Deposits
• Mutual funds
• Cash/cash equivalents
• Discretionary funds

A fund’s or firm’s AUM varies based on the state of the market, too. For example, the SPDR S&P 500, one of the market’s most popular exchange-traded funds (ETFs), had assets under management of $321 billion the day before the market crash of Feb. 20, 2020. The day after, this figure fell by $4 billion.

How to calculate assets under management

Luckily, you don’t have to calculate a firm’s or fund’s assets under management yourself. You can find this readily available public information in multiple places.

• Advisory firms. The Securities and Exchange Commission (SEC) requires that firms with $110 million or more in assets under management publish their AUM each year. You can visit the Investor Adviser Public Disclosure website and see any SEC-registered firm’s AUM by viewing Item 5, Section F of its annual Form ADV filing.
• Mutual funds and ETFs. You can find a fund’s AUM by visiting an online quote site like Yahoo Finance or even the fund’s profile page at your online broker. The fund’s AUM is typically listed as “net assets.”

Why is AUM important for investors?

You can use a firm’s AUM to your advantage as an investor. First, you can use it as a trust factor for the firm itself. Then, you can use your prospective assets under management figure as a guide to estimate your fees should you choose to become that firm’s client.

Trust

Advisory firms love to advertise their assets under management as a beacon of trust to prospective investors. While AUM can be a sweet marketing tool for advisors, it can also reassure you that other investors trust the firm with their assets. There’s no shame in wanting a bit of reassurance from a firm before you trust it with your savings.

However, a firm’s AUM doesn’t tell the entire story, and a larger AUM isn’t necessarily better. For example, say a firm you’re considering has $250 million in AUM. While that’s impressive on the surface, you discover from the firm’s Form ADV that it has 10,000 clients and 50 advisors, meaning each advisor has roughly 200 clients.

In this case, AUM led you to the firm’s average account size ($25,000) but also shined a light on what could be a relationship that won’t give you the personalized advice you crave.

Estimating fees

To help you estimate the management fees you’d pay an advisor if you became their client, we’ll look at a different assets under management figure: yours.

The most common way financial advisors charge for their services is by AUM — a percentage of the assets they manage on your behalf. So if an advisor charges their clients 1% of AUM and you bring $50,000 to the firm, your annual fee would be $500.

Using AUM to estimate your fees can be helpful in two different ways. First, this calculation can help determine if you can afford to work with a particular advisor, as fees vary widely. Next, you can see how your fees might change as you build your wealth.

For example, many firms offer tiered fee structures where you’re assessed a separate AUM fee for different balances. While that might sound tricky, it’s pretty simple if you look at an example:

As you build your wealth, you get a fee break on higher balances. For instance, say you grow your wealth from $10,000 to $90,000. In that case, here’s how your AUM fees would break down:

• First $10,000: $150 per year
• $10,001 to $50,000: $499.99 per year
• $50,001 to $90,000: $399.99 per year
• Total annual fee: $1,049.98 per year

Your total blended AUM fee would be 1.17% of AUM, a nice price break to reward your growing wealth.

Why AUM isn’t all you should consider

While AUM is a great tool that can help you gain trust and estimate potential fees, it’s not the only factor you should consider when choosing a financial advisor. We encourage you to weigh other factors, including:

• Your needs. Consider the complexity of your financial needs and if the firm’s services align with your goals.
• Fiduciary status. Ask whether your advisor is a fiduciary — one who’s legally required to put your financial interest above their own.
• Experience. Ask about your advisor’s qualifications — like if they hold a certified financial planner (CFP) credential — and securities licensing, especially if they’ll be trading on your behalf.
• Disciplinary history. Check the annual Form ADV filing to determine if the firm, its employees or its affiliates have had regulatory or criminal issues in the past 10 years.
• Investment philosophy. Determine whether a firm has investment strategies — like ethical investing options or tax-minimization strategies — that fit your values and unique needs.