What Is Assets Under Management and How Does It Relate to Financial Advice?
By Georgia Holmes
Learn what assets under management means, how investment firms calculate AUM, how it affects management fees and what to consider when comparing wealth managers.
Assets under management (AUM) is a term used across the UK financial services sector to describe the value of money and investments managed by a financial professional or firm on behalf of clients. It is particularly relevant when considering financial advice, wealth management and investment services.
For individuals looking for a financial adviser, understanding AUM can help explain how advisers work with clients’ investments, how fees may be calculated and what to consider when comparing services.
However, AUM is not a measure of the quality of financial advice. An adviser managing a large portfolio is not necessarily better suited to your needs than one managing a smaller amount of money.
What does AUM mean in financial advice?
In the context of financial advice, assets under management usually refers to the value of investments that a firm manages for its clients. Depending on the service, these may include investment portfolios, shares, bonds, funds and certain pension investments.
The precise meaning can vary between financial services providers. Some firms use AUM to describe assets they actively manage, while others may use the term more broadly when discussing client investment portfolios.
It is also useful to distinguish AUM from assets under advice (AuA). Assets under advice can refer to investments and pension assets on which a financial adviser provides advice, even where another provider or investment manager is responsible for managing the money.
For example, a financial adviser might recommend an appropriate investment strategy and review a client’s pension each year, while a separate investment manager makes day-to-day investment decisions. The assets may be under advice without being directly managed by the adviser.
This distinction matters because financial advisers offer different services. Some focus on financial planning and recommendations, while others provide investment management alongside advice.
How is AUM calculated?
AUM is generally calculated by adding together the market value of the assets included within a firm’s management service at a particular point in time.
For example, suppose a client has a managed investment portfolio worth £300,000 and other investments worth £100,000 that are not included in the service. The adviser’s AUM for that client may be £300,000 rather than £400,000.
The figure can change as investments rise or fall in value, or when clients add money or make withdrawals. A firm’s reported AUM can therefore increase because markets have performed well, because it has attracted new clients or contributions, or through a combination of these factors.
AUM should not be confused with a client’s total wealth. Property, cash savings, business interests and other assets may form part of a person’s overall financial position without being included in an adviser’s AUM.
How does AUM affect financial adviser fees?
AUM is particularly relevant when a financial adviser charges a percentage of the investments covered by an ongoing service.
For example, if an adviser charges an annual fee of 0.75% on a managed portfolio worth £200,000, the annual charge would be £1,500. If the portfolio increased to £220,000 and the same percentage continued to apply…