What is Assets Under Management (AUM)?
Assets Under Management (AUM) represents the total market value of all financial assets that an investment advisor, wealth manager, or financial institution manages on behalf of its clients. This metric serves as a primary indicator of a firm's size, success, and capacity.
Why AUM Matters for Financial Advisors
- Revenue Generation: Most RIAs charge fees based on a percentage of AUM (typically 0. 5% to 1. 5% annually)
- Regulatory Thresholds: SEC registration is required for advisors with $110+ million in AUM
- Credibility Signal: Higher AUM often indicates client trust and operational capability
- Business Valuation: AUM is a key factor in valuing advisory practices for M&A
Calculating AUM
AUM includes:
- Stocks and bonds
- Mutual funds and ETFs
- Cash and cash equivalents
- Alternative investments
- Any assets the advisor has discretionary authority over
AUM vs. Assets Under Advisement (AUA)
While AUM refers to assets the advisor actively manages, AUA includes assets where the advisor provides guidance but the client makes final decisions.
Industry Benchmarks
- Small RIA: Under $100 million AUM
- Mid-size RIA: $100 million to $1 billion AUM
- Large RIA: Over $1 billion AUM
Growing AUM is essential for scaling an advisory practice and improving profitability through economies of scale.
