Assets Under Management vs. Assets Under Advisement: What RIAs Need to Know

Assets Under Management vs. Assets Under Advisement: What RIAs Need to Know

For registered investment advisers (RIAs), accurately defining and reporting Assets Under Management (AUM) and Assets Under Advisement (AUA) is crucial for regulatory compliance, client transparency, and business valuation. However, the distinction between these two metrics is not always clear. Understanding what should be counted as AUM versus AUA helps RIAs properly classify their services and avoid potential regulatory missteps.

What Are Assets Under Management (AUM)?

AUM represents the total market value of assets that an adviser has direct and discretionary authority over. This means the adviser has the power to make investment decisions on behalf of clients, including buying, selling, and reallocating assets without obtaining prior client approval for each transaction.

What Should Be Counted as AUM?

To qualify as AUM, assets must meet the following criteria:

1. Discretionary Authority – The adviser must have the ability to make investment decisions without obtaining client consent for each transaction.

2. Continuous and Regular Supervisory Responsibility – The adviser must provide ongoing monitoring and investment management.

3. Client Assets in Managed Accounts – These include assets in separately managed accounts (SMAs), wrap fee programs, and portfolios where the adviser actively manages the investments.

4. Assets Held at Third-Party Custodians – As long as the adviser has discretionary authority over these accounts, they should be counted toward AUM.

5. Pension and Retirement Plan Assets – If the adviser has full discretion over plan assets, they are included in AUM.

Regulatory Reporting of AUM

AUM is a critical metric for Form ADV reporting. RIAs must accurately report their regulatory AUM on Form ADV Part 1A, Item 5.F, as this figure determines eligibility for SEC versus state registration.

• SEC-Registered RIAs: Generally, firms with AUM of $100 million or more must register with the SEC.

• State-Registered RIAs: Firms with AUM below $100 million typically register with state regulators unless an exemption applies.

Misreporting AUM—whether intentional or due to misunderstanding—can result in compliance violations, penalties, or reputational damage.

What Are Assets Under Advisement (AUA)?

AUA includes assets for which an adviser provides recommendations, guidance, or model portfolios but does not have discretionary authority. Unlike AUM, these assets remain under the control of the client, a third-party manager, or another financial institution.

What Should Be Counted as AUA?

1. Non-Discretionary Advisory Services – Assets in accounts where the adviser provides investment recommendations but does not execute trades or have discretionary authority.

2. Model Portfolio Services – Assets managed by third-party investment firms based on an adviser’s model portfolio allocations.

3. Consulting Relationships – Assets within corporate retirement plans, foundations, or endowments where the adviser provides strategic recommendations but does not manage the portfolio directly.

4. Assets in Unified Managed Accounts (UMAs) – If the adviser provides research and guidance but does not directly manage the underlying investments.

5. Held-Away Accounts – Client assets in 401(k) plans, annuities, or private banking accounts where the adviser provides oversight and reporting but does not have direct control.

Why AUA Matters

Although AUA is not reported in Form ADV as regulatory AUM, it is an important metric for business valuation and

client reporting. Many firms include AUA in marketing materials to demonstrate their overall influence and reach in asset management. However, advisers must clearly distinguish between AUM and AUA to avoid misleading clients or regulators.

Key Differences Between AUM and AUA

Feature	Assets Under Management (AUM)	Assets Under Advisement (AUA)
Discretionary Authority	Yes	No
Regulatory Reporting	Required on Form ADV	Not required on Form ADV
Client Control Over Assets	Limited, adviser has trading authority	Client or third party retains control
Marketing & Business Valuation	Often used to determine RIA size and SEC registration	Used to highlight overall advisory influence
Fee Structure	Typically fee-based (AUM % model)	Can be fee-based, flat-fee, or consulting-based

Best Practices for RIAs

1. Ensure Accurate Reporting – Only include discretionary assets in regulatory AUM reporting. Be transparent when marketing AUA figures.

2. Disclose Fee Structures Clearly – Clients should understand how fees are structured for discretionary versus non-discretionary services.

3. Maintain Documentation – Keep clear records of discretionary versus non-discretionary relationships for compliance purposes.

4. Avoid Misleading Marketing – Clearly differentiate between AUM and AUA in client communications, website disclosures, and presentations.

By properly categorizing AUM and AUA, RIAs can maintain regulatory compliance, build trust with clients, and present an accurate picture of their business operations.

Do you have questions about AUM vs. AUA classification? Contact us today to ensure your firm remains compliant and competitive in the evolving advisory landscape.