Assets Under Advisement (AUA)

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on January 24, 2024

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Definition of Assets Under Advisement (AUA)

Assets under advisement refers to the total value of assets that an investment advisor provides investment advice on but does not necessarily own. These assets are typically owned by clients and are managed by the advisor.

AUA includes all assets that an advisor provides advice on, including equities, bonds, mutual funds, exchange-traded funds (ETFs), and alternative investments. AUA is a crucial metric for investment advisors and their clients.

It provides insight into the value of assets that an advisor manages and helps measure an advisor's business growth. AUA is also essential in assessing the performance of investment advisors and their investment strategies.

For example, an advisor with a high AUA may be viewed as more successful than an advisor with a low AUA. Additionally, AUA can provide insight into an advisor's client base and their investment preferences.

Characteristics of Assets Under Advisement

One of the primary characteristics of AUA is that it represents assets that an advisor manages but does not necessarily own. The advisor provides investment advice on these assets, but the client ultimately owns them.

This is different from assets under management (AUM), which includes assets that the advisor manages and owns. Another characteristic of AUA is that it includes all assets that an advisor provides investment advice on.

This includes equities, bonds, mutual funds, ETFs, and alternative investments. The advisor may provide advice on these assets, but the client ultimately decides whether to invest in them.

Finally, AUA includes all assets that generate fees for the advisor. These fees can include management fees, performance fees, and transaction fees. The fees generated from AUA are typically the primary source of revenue for investment advisors.

Calculation of Assets Under Advisement

There are two methods of calculating AUA: gross AUA and net AUA.

Gross AUA

Gross AUA includes all assets that an advisor provides investment advice on, regardless of whether they generate fees for the advisor. Gross AUA is calculated by adding up the total value of all assets that the advisor provides advice on.

Net AUA

Net AUA only includes assets that generate fees for the advisor. Net AUA is calculated by subtracting any assets that do not generate fees from gross AUA.

Factors That Can Affect AUA Calculation

Several factors can affect the calculation of AUA, including market value fluctuations, client withdrawals, and new client acquisition.

Market Value Fluctuations

The value of assets can fluctuate significantly based on market conditions. If the value of assets increases, the AUA will increase as well.

Conversely, if the value of assets decreases, the AUA will decrease. It's essential to note that market value fluctuations can have a significant impact on AUA calculations, especially in volatile markets.

Client Withdrawals

Client withdrawals can also affect AUA calculations. If clients withdraw their assets, the AUA will decrease. However, if new clients are acquired, the AUA can increase, offsetting the impact of client withdrawals.

New Client Acquisition

New client acquisition is another factor that can impact AUA calculations. If an advisor acquires new clients, the AUA will increase. However, if an advisor loses clients, the AUA will decrease.

It is essential to note that the impact of new client acquisition can take some time to manifest fully.

Factors That Can Affect AUA Calculation

Significance of AUA

Measuring an Advisor’s Business Growth

AUA is an essential metric for measuring an advisor's business growth. As an advisor's AUA grows, their revenue typically increases, allowing them to reinvest in their business and expand their services.

AUA can also provide insight into an advisor's client base and their investment preferences. By understanding their client base, advisors can develop more effective investment strategies and improve their overall performance.

Performance Metric for Investment Management

AUA can also serve as a performance metric for investment management. Advisors with a high AUA are typically viewed as more successful than advisors with a low AUA.

However, it's important to note that AUA should not be the sole metric used to assess an advisor's performance.

Other factors, such as investment returns, risk management, and client satisfaction, should also be considered.

Indicator of Advisor/Client Relationship Strength

Finally, AUA can also be an indicator of the strength of an advisor's relationship with their clients.

Advisors with high AUA typically have strong relationships with their clients and can maintain a high level of trust and confidence. This is important for advisors, as it can lead to increased client loyalty and retention.

Challenges With AUA

Limitations of AUA as a Performance Metric

While AUA is an important metric, it does have limitations as a performance metric. AUA does not provide insight into an advisor's investment performance or risk management capabilities.

It's possible for an advisor to have a high AUA but poor investment returns or inadequate risk management.

Challenges With AUA Data Accuracy

Another challenge with AUA is ensuring data accuracy. AUA calculations can be complex, especially when factoring in market value fluctuations, client withdrawals, and new client acquisition.

Ensuring that AUA data is accurate and up-to-date can be a significant challenge for investment advisors.

AUA in Relation to Industry Regulations and Compliance

Finally, AUA can also be subject to industry regulations and compliance requirements. Investment advisors must comply with industry regulations and maintain accurate records of their AUA. Failure to do so can result in penalties and legal consequences.

Conclusion

Assets Under Advisement is a crucial metric for investment advisors and their clients, representing the total value of assets that an advisor provides investment advice on but does not necessarily own.

AUA includes all assets that an advisor provides advice on, and it is calculated as gross AUA or net AUA, depending on whether it includes all assets or only assets that generate fees for the advisor.

Several factors can affect the calculation of AUA, including market value fluctuations, client withdrawals, and new client acquisition.

AUA serves as a performance metric for investment management, an indicator of the strength of an advisor's relationship with their clients, and a way to measure an advisor's business growth.

However, AUA has limitations as a performance metric and can be challenging to ensure data accuracy. Investment advisors must comply with industry regulations and maintain accurate records of their AUA to avoid penalties and legal consequences.

Assets Under Advisement (AUA) FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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