Calculating Assets Under Advisement (AUA) involves adding up the total value of all assets that a financial advisor provides advice on. This metric is crucial for understanding an advisor's reach and the scope of their client relationships.
Understanding Assets Under Advisement (AUA)
Assets Under Advisement (AUA) represents the total market value of assets for which a financial advisor or firm provides investment advice, guidance, and recommendations. A key characteristic of AUA is that it includes all assets an advisor provides counsel on, irrespective of whether those assets directly generate management fees for the advisor. This distinguishes it from Assets Under Management (AUM), where the advisor actively manages the assets and typically charges a fee based on their value.
Why AUA Matters
AUA is an important metric for several reasons within the financial advisory industry:
- Holistic Client Relationships: It reflects the full extent of an advisor's influence and the breadth of their client relationships, even on assets held elsewhere (e.g., 401(k)s, company stock options).
- Firm Valuation: For advisory firms, AUA can contribute to their overall valuation, demonstrating market presence and potential for future revenue growth.
- Benchmarking and Growth: It helps advisors and firms benchmark their growth, market share, and client engagement over time.
- Client Confidence: A larger AUA figure can signal experience and trust to prospective clients, indicating a significant number of individuals rely on the advisor's guidance.
The Calculation Method for AUA
The process for calculating AUA is straightforward:
- Identify All Advised Assets: Compile a comprehensive list of all assets for which the advisor or firm offers investment advice. This can include:
- Client accounts directly managed by the advisor (which would also be AUM).
- Assets held in employer-sponsored retirement plans (like 401(k)s or 403(b)s) where the advisor provides guidance on investment options.
- Brokerage accounts where the client makes the final trading decisions but receives recommendations from the advisor.
- Self-directed IRAs or other investment accounts where the advisor offers strategic planning or asset allocation advice.
- Trusts and estates where the advisor provides guidance on investment strategy.
- Determine Current Market Value: For each identified asset, ascertain its most recent market value. This requires up-to-date valuations for all holdings.
- Sum the Total Values: Add together the current market values of all these assets. The resulting sum is the total Assets Under Advisement.
Formula:
$$ \text{AUA} = \sum (\text{Value of each asset advised upon}) $$
Practical Example
Consider a financial advisor, Jane, who serves several clients:
| Client Name | Asset Type | Market Value | Advisor's Role |
|---|---|---|---|
| Client A | Managed Investment Portfolio | \$1,500,000 | Direct Management & Advice |
| Client B | 401(k) Plan | \$800,000 | Advice on fund selection & allocation |
| Client C | Self-Directed Brokerage | \$500,000 | Strategic asset allocation advice |
| Client D | Investment Portfolio | \$1,200,000 | Direct Management & Advice |
| Client E | College Savings Plan (529) | \$150,000 | Advice on investment options & contributions |
To calculate Jane's AUA:
- \$1,500,000 (Client A)
- \$800,000 (Client B)
- \$500,000 (Client C)
- \$1,200,000 (Client D)
- \$150,000 (Client E)
Total AUA = \$1,500,000 + \$800,000 + \$500,000 + \$1,200,000 + \$150,000 = \$4,150,000
In this example, Jane's AUA is \$4,150,000, reflecting the total value of assets on which she provides professional advice, regardless of whether she actively manages them or earns a fee from every single asset.
For further reading on financial advisory metrics, you can explore resources like Investopedia or industry publications such as Financial Planning.
