INVESTING
TERMS
Introduction: What is Assets Under Advisement (AUA)?
Assets Under Advisement (AUA) represents the total assets that a financial advisor provides guidance on, without necessarily having the discretionary control to make investment decisions. This is distinct from Assets Under Management (AUM) where the advisor has full discretionary control over the investments.
Distinction between AUA and AUM
Definition and Control
Assets Under Advisement (AUA): This encompasses all assets that an advisor gives guidance on, but may not have the authority to make direct decisions. It includes advisory-only accounts and some retirement plan assets.
Assets Under Management (AUM): These are the total assets that an advisor actively manages, making all investment decisions and having discretionary control.
Implications for Clients
When an advisor states they have assets under advisement, it means they provide advice but the ultimate decision rests with the client or another party. With assets under management, the advisor makes the investment decisions on the client's behalf.
Factors Impacting AUA and AUM
Market Volatility
Market changes can cause fluctuations in both AUA and AUM. An increase in market value can increase the assets, while a market downturn can reduce them.
New Client Acquisition
As advisors acquire more clients, both their AUA and AUM can increase, depending on the services offered.
Client Withdrawals
Clients withdrawing funds or closing accounts can decrease both AUA and AUM.
Benefits of Assets Under Advisement
Client Autonomy
Clients maintain control over their investment decisions, ensuring they're comfortable with every move.
Flexibility
It offers a more flexible approach to investment, allowing clients to seek advice but make the final call.
Broader Service Range
Advisors can guide on a wider range of assets, even those they don't directly manage.
Why AUM Matters?
Predictable Revenue
Advisors earn a fee, usually a percentage of the AUM, giving them a predictable revenue stream.
Trust and Authority
Clients entrust advisors with discretionary control, reflecting a high level of trust.
Active Management
Allows for timely decisions in response to market changes, potentially maximizing returns.
The Future of Asset Management
With advancements in technology and the rise of robo-advisors, the asset management landscape is evolving. Clients now have a range of options, from traditional asset management to hybrid models. Understanding the nuances of AUA and AUM becomes even more critical in this changing environment.
