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Assets Under Management (AUM) refers to the total market value of investments a financial institution or individual manages on behalf of clients, serving as a key indicator of size and influence.
Assets Under Management (AUM) is a financial metric representing the market value of all the assets that an investment management firm, wealth manager, or family office administers on behalf of its clients. It encompasses all types of investments including stocks, bonds, alternative investments, and cash. AUM is critical in evaluating the scale and growth of investment platforms and is often used by investors to assess the credibility and capacity of a financial manager or advisory firm. The value of AUM fluctuates based on market performance and net inflows or outflows (client contributions and withdrawals). In wealth management and family office operations, AUM is fundamental for measuring portfolio size and for determining management fees, as many firms charge fees as a percentage of AUM. It also reflects the investment capacity and the potential for negotiating better terms with service providers. AUM can include discretionary assets directly managed by the advisor and non-discretionary assets where the advisor provides recommendations but the client retains final control. Overall, AUM functions as a barometer for investment management success and influence, while also playing a financial role in revenue generation and client relationship management.
Monitoring Assets Under Management is vital for investment strategy formulation and operational scalability. Larger AUM can enable access to a wider range of investment opportunities, including exclusive funds or reduced fees due to economies of scale. In reporting, AUM is integral for transparency and performance benchmarking, allowing advisors and family offices to track growth, market impact, and client asset flows effectively. From a tax planning perspective, accurate AUM calculations help in estimating tax obligations and in structuring investment portfolios to optimize tax efficiency. Governance-wise, maintaining and reporting accurate AUM figures supports fiduciary responsibilities, compliance standards, and client trust by demonstrating stewardship and accountability over assets.
A family office manages $150 million in client portfolios, including equities, fixed income, and alternative assets. Due to market appreciation, their total AUM increases by 5% over a year, growing the assets managed to $157.5 million. If their management fee is 1%, they earn $1.575 million that year based on AUM.
Assets Under Advisement (AUA)
While AUM refers to assets that a manager directly controls and manages, Assets Under Advisement (AUA) refers to assets for which the advisor provides guidance or recommendations but does not have discretionary control. This distinction helps clarify the level of management and influence over client portfolios.
How is AUM calculated?
AUM is calculated by totaling the current market value of all assets managed by a financial institution or advisor on behalf of clients, including securities, cash, and alternative investments. Adjustments are made for deposits, withdrawals, and market value fluctuations.
Does AUM include client assets not directly controlled by the manager?
Typically, AUM only includes assets over which the manager has discretion and direct control. Assets where the manager provides advice but no direct authority are classified as Assets Under Advisement (AUA).
Why does AUM fluctuate over time?
AUM fluctuates due to factors such as market performance affecting portfolio values, inflows when clients add funds, and outflows when clients withdraw assets or fees are deducted.