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AUA vs. AUM: How Do They Differ?

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Assets under management (AUM) refer to assets on an advisor’s platform that they can directly manage and execute trades for, either on a discretionary or non-discretionary basis. In contrast, assets under advisement (AUA) are assets the advisor provides guidance on but cannot trade due to logistical limitations, such as 401(k) accounts. Here’s an overview of the key differences between these terms and their relevance.

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What Are Assets Under 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 cannot 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. However, 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 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.

Bottom Line

Assets under advisement (AUA) and assets under management (AUM) are key financial metrics used to assess the scope and growth of an advisor’s business. AUM represents the total value of assets an advisor directly manages and can execute trades on, reflecting the advisor’s level of control over client investments. In contrast, AUA measures the total value of assets the advisor provides guidance for without the ability to directly manage or trade, such as 401(k) accounts. Together, these metrics provide insight into the scale of an advisor’s operations, the breadth of services offered, and the trajectory of business growth over time.

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