Ever wonder why some financial advisors flex their “AUM”? Well, in the world of financial advice, Assets Under Management (AUM) is kind of a big deal — and understanding what it means could save you from the equivalent of swiping right on the wrong financial advisor.
AUM represents the combined market value of all the investments an advisor manages for their clients — we’re talking the sum of all stocks, bonds, mutual funds, ETFs, cash, and even that Bitcoin your cousin won’t shut up about at Thanksgiving dinner.
But AUM isn’t just some fancy number advisors throw around to impress guests at cocktail parties. It’s actually a crucial metric that can tell you a lot about an advisor’s experience, credibility, and ability to handle serious money.
The financial advisory industry is managing some serious cash these days. We’re talking about $128.4 trillion in assets as of 2023 — a 12.5% jump from the previous year. But before your eyes glaze over at these astronomical numbers, let us tell you why this matters for your money.
Why Does AUM Matter?
Put simply, Assets Under Management is a reflection of an advisor’s credibility and expertise. When you’re looking at an advisor’s AUM, you’re essentially getting a peek behind the curtain at their track record — but it’s only part of the full story.
AUM can be a strong indicator of an Advisor’s expertise and reputation since those with higher AUM have often weathered multiple market storms, helped clients navigate complex financial situations, and built enough trust for people to say, “Here, manage my life savings.” Here are three things a higher AUM can indicate:
- Experience and Expertise: Advisors with higher AUM often have a proven track record of managing diverse portfolios across different market conditions. This experience can be valuable when navigating complex financial situations.
- Client Trust and Retention: A larger AUM typically indicates that an advisor has built strong, long-term relationships with their clients. It suggests that clients trust the advisor enough to entrust them with significant sums of money.
- Specialized Services: Advisors or firms with substantial AUM often have the resources to offer specialized services, such as estate planning, tax optimization, or tailored investment strategies for high-net-worth individuals.
AUM helps you gauge an advisor’s market presence, client trust, and overall capabilities. But just like how you wouldn’t marry someone solely based on their bank account, you shouldn’t choose a financial advisor based on AUM alone. Some rockstar advisors might have lower AUM because they’re newer to the game or focus on serving younger professionals who are still building wealth.
That said, AUM isn’t the only factor to consider. An advisor with a lower AUM might still be highly skilled and provide excellent service, while a high AUM doesn’t automatically guarantee better performance or client satisfaction.
We’ll dive deep into how AUM it’s calculated (and the interesting SEC rules involved in that) and how to verify that the numbers you’re seeing aren’t just creative accounting. Whether you’re shopping for your first financial advisor or wondering if your current one is still the right fit, understanding AUM is your first step toward making smarter decisions with your money.
How AUM is Calculated
If you’ve ever played Monopoly, you probably remember adding up all your properties and houses and counting that sweet stack of colorful cash at the end. Well, calculating Assets Under Management (AUM) is kind of like that — except we’re talking about real money.
AUM is the sum value of all the assets a financial advisor is actively managing for their clients. But unlike your final score in Monopoly, this number isn’t static. It’s a living figure that changes daily, and understanding how it’s calculated can help you understand the scale at which a financial advisor is operating (and how it might fit in the picture as a client).
Actively Managed Assets
AUM is the total market value of all the investments an advisor manages for their clients, but only actively managed assets count. That means anything that your advisor doesn’t oversee — things like the residence you own, your personal checking or brokerage accounts, and secret family heirlooms — doesn’t make it into the AUM calculation.
Regulatory Guidelines
In the U.S., the Securities and Exchange Commission (SEC) is the regulatory authority calling the shots. Advisors with an AUM above $110 million must register with the SEC to ensure transparency and accountability in how the figure is reported.
This SEC is great for you because it keeps an advisor’s AUM figures accurate, making them a reliable measure of an advisor’s operations. Think of it as a special driver’s license for financial advisors — you want to make sure they’re cleared to drive an 18-wheeler before they take your money for a spin.
Market Fluctuations:
AUM isn’t a fixed number. Since it’s based on market values, it can change daily when the market fluctuates. For instance, when the stock market is up, AUM goes up; When it’s down, AUM follows. You’re familiar with the ups and downs of financial markets if you’ve ever invested in stocks.
AUM and Fees
One of the most common ways financial advisors charge for their services is by taking a percentage of the AUM. This fee structure is often tiered, meaning the percentage decreases as the portfolio size increases. For example:
- 1% for accounts under $1 million.
- 0.75% for accounts between $1 million and $5 million.
- 0.50% or less for accounts over $5 million.
This tiered system benefits clients with larger portfolios, as they pay a lower percentage in fees. On average, advisory fees (including AUM-based fees and other charges) are around 1.65% annually, though high-net-worth clients often pay less due to their larger account sizes.
Why Understanding AUM Calculations Is Important
Understanding AUM isn’t just about impressing your friends (though it might do that, too). It’s about knowing what you’re paying for and how your advisor’s business model works. A higher AUM can indicate experience and credibility, but it’s not the only factor to consider. After all, you wouldn’t choose a doctor solely based on how many patients they have, would you?
So, the next time you evaluate a financial advisor, take a closer look at their AUM. It’s not just a number — it’s a window into their expertise, their client base, and how they’ll manage your money. While bigger isn’t always better, understanding AUM is your first step toward making smarter, more informed decisions about your financial future.
Locating AUM Information in Advisor Profiles
When you’re on the hunt for a financial advisor, one of the most useful pieces of information you can review is their AUM. Our financial advisor directory prominently display AUM data, and finding this information is super easy with our directory.
Here’s a step-by-step guide on where to find this data and how to use it to make an informed decision.
1. Search for the Advisor: Use the directory’s search function to find an advisor by name, firm, or specialty.
2. Open the Advisor’s Profile: Click on the advisor’s profile to access detailed information.
3. Navigate to the Firm Information Section: Scroll to the Firm Information section, where AUM is typically listed alongside other key metrics like years of experience, certifications, and services offered.
4. Review AUM Details: AUM figures are updated regularly to reflect market performance, client growth, and other factors. This helps you assess the advisor’s current market position and influence.
5. Compare Multiple Advisors: Repeat the steps for other advisors to make an informed comparison based on AUM and additional factors like fees, specialties, and compliance records.
For additional transparency, you can also look up the advisor’s AUM on the SEC’s Investment Adviser Public Disclosure (IAPD) website. Their annual Form ADV filing will include details about their AUM in Item 5, Section F.
Our financial advisor directory makes finding and reviewing vital AUM information a breeze. This insight not only demonstrates the advisor’s market presence and experience but also helps you compare different advisors based on concrete data, making your search for a qualified financial advisor much more informed and straightforward.
How to Evaluate and Look Beyond AUM
AUM gives you valuable insights into an advisor — and now that you understand how to find and interpret AUM data, let’s talk about what else you should be looking for in a financial advisor.
A well-rounded view of a financial advisor requires looking beyond AUM. There are a range of factors — from how an advisor makes decisions on your behalf to their track record, client service quality, and fee transparency — that, alongside AUM, paint a fuller picture of who they are and how they operate.
Recent studies show that only 11% of advisors provide truly comprehensive advice, and 32% of clients don’t believe their advisor makes recommendations in their best interest. Yikes. Let’s dive into the other aspects that will help you form a comprehensive evaluation of an advisor. Here are factors you must consider to make an informed decision about who is the right financial advisor for your needs.
- Discretionary Authority: Does the advisor have the authority to make investment decisions on your behalf, or do they need your approval for every trade? Advisors with discretionary authority are often more hands-on in managing portfolios.
- Investment Performance: AUM tells you how much an advisor manages but not how well they’ve performed. Look at their historical track record in meeting client goals and compare it to relevant benchmarks.
- Client Service Quality: A good advisor should communicate clearly, respond promptly to your questions, and provide personalized attention. High AUM doesn’t always translate to excellent client service.
- Regulatory Compliance: Check the advisor’s compliance history on their Form ADV filing. A clean record is a good sign, while frequent violations or complaints could be a red flag.
- Client Composition: Consider the types of clients the advisor serves. For example, an advisor with a high AUM might focus on institutional clients, while one with a lower AUM might specialize in retail investors.
- Fee Transparency: Ensure you understand all costs associated with the advisor’s services, including hidden fees like custodial or transaction fees.
A financial advisor’s qualifications extend well beyond just the size of their managed assets — weighing all these factors alongside AUM is crucial. Taking the time to evaluate all these factors, from regulatory history to fee schedule, will give you a much clearer picture of an advisor and make you more confident when deciding that they’re truly the right fit for your financial goals.
Use our directory to discover financial advisors in your area, check their credentials and disclosures, and see data reported by FINRA and the SEC. Our advisor profiles are designed to empower you to make an informed decision when choosing a financial advisor.
FAQs
Q1. What is considered a good Asset Under Management (AUM) for a financial advisor? A good AUM varies depending on the advisor’s experience and client base. Generally, advisors with higher AUM are seen as more established, but it’s important to consider other factors like client retention rates and service quality. The average AUM for a financial advisor is around $305 million.
Q2. How does Assets Under Management (AUM) reflect an advisor’s capabilities? AUM can indicate an advisor’s experience and market presence. Higher AUM often suggests the ability to attract and retain clients, as well as manage diverse portfolios. However, it’s crucial to evaluate AUM alongside other factors, such as investment performance, client service quality, and regulatory compliance history.
Q3. Where can I find information about an advisor’s Assets Under Management (AUM)? You can find an advisor’s AUM information on advisor profiles using our directory alongside key details like compliance history and credentials. For additional information, visit the SEC’s Investment Adviser Public Disclosure (IAPD) website, where AUM is listed under Item 5, Section F of the advisor’s annual Form ADV filing.
Q4. How do fees typically relate to Assets Under Management (AUM)? Fees for AUM-based services often follow a tiered structure. For example, accounts under $1 million might be charged 1%, while accounts between $1 to $5 million might be charged 0.75%. The median all-in cost for financial advisors averages 1.65%, but this typically decreases as portfolio size increases.
Q5. What factors should I consider when evaluating an advisor’s Assets Under Management (AUM)? When evaluating AUM, consider factors such as the advisor’s discretionary authority, quality of portfolio supervision, ability to select investments, transaction execution, and management of third-party managers. It’s also important to look at the advisor’s client composition, investment performance track record, and regulatory compliance history.