Assets under management (AUM) are assets that an advisor can physically executive trades on because those assets are on the advisors platform. In other words, directly “managed” or handled by the advisor. It can either be discretionary or non-discretionary. AUA are assets that the advisor provides advice on, but does not have any ability to place trades for the client because they are not on the advisors platform. They simply can’t from a logistics standpoint. A common example is 401k accounts.
Here are the key differences between both financial terms and why they are used.
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What Are Assets Under Advisement (AUA)?
In simple terms, Assets Under Advisement (AUA) represents the total value of assets that a financial advisor gives advice or consultation on, but does not have the ability to make decisions and execute trades for these assets.
Put another way, the advisor can offer advice on various assets such as mutual funds, stocks, bonds and other investment accounts that the client possesses. But ultimately, orders have to be made by the client.
As an example, let’s think of a financial advisor advising an individual investor who has a portfolio worth $100,000 with another custodian. Their role might involve suggesting asset allocation or specific investment choices. However, the client makes all final investment decisions.
This financial metric is typically used to measure an advisor’s business growth. It can show how revenue increases or decreases, and offer a snapshot of their client base and investment preferences.
What Are Assets Under Management (AUM)?
On the flip side, assets under management (AUM) are those assets that financial advisors or institutions actively manage on behalf of a client, on either a discretionary or a non-discretionary basis. Non-discretionary means advisors don’t just provide advice; they make investment decisions without requiring approval from the client each time. Discretionary means advisors obtain client approval for any changes.
AUM is also used to measure the total market value that fund and portfolio managers own and manage.
What Fees Do AUA and AUM Charge?
When comparing AUA and AUM fees, the first is typically linked to advisory services, while the latter relates more often to the actual management of assets.
Both fee structures depend on the services that an advisor or firm renders. For example, one firm may charge more for managing a larger amount of assets, but this isn’t a universal rule. AUA and AUM services, including financial planning and consultation, can be based on flat or hourly rates. But both AUA and AUM services could also charge a percentage of assets under management based on client account sizes.
Keep in mind that a lower fee isn’t always indicative of better value. The fees should be considered in conjunction with factors like long-term performance, service quality and a firm’s specific expertise that is relative to your investment goals.
AUA vs. AUM: Comparing Financial Backgrounds and Goals
Let’s take two examples to show how AUA and AUM are used to measure the total assets managed and/or held by a financial advisor.
Alex makes regular contributions to a 401(k) plan and works with an advisor. While the advisor makes allocation recommendations and offers financial planning and consulting services, Alex has complete ability to make those changes.
In this scenario, Alex’s assets are considered AUA and the advisor may include Alex’s assets as part of the total assets that the advisor gives advice or consultation on. This metric can be valuable to give prospective clients a full breakdown of the advisor’s responsibilities.
Jane, by comparison, is an individual investor with a moderate income. She decides to work with an advisor who has a high AUM, anticipating that she may receive more personalized asset management and possibly lower fees.
Since AUM advisors are typically paid based on how much clients have invested, they may use AUM to show prospective clients how well Jane’s and other investments are performing as a whole.
Assets under advisement (AUA) and assets under management (AUM) are two financial metrics used by advisors to gauge the size of an advisors business. AUM and AUA size simply indicate the size of the business, that it does in fact manage or advise on assets and how it has grown over time.
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