Understanding the Importance of Regulatory Assets Under Management RAUM for Investment Advisers
- Ivan Barretto
- Dec 18
- 4 min read
Registered Investment Advisers (RIAs) face many regulatory requirements, but few are as crucial as understanding Regulatory Assets Under Management (RAUM). This figure not only determines whether an adviser must register with the Securities and Exchange Commission (SEC) or state regulators but also affects ongoing disclosure and reporting duties. Getting RAUM right is essential for compliance and helps regulators evaluate the size and risk profile of advisory firms.
This post explains what RAUM means, why it matters, how to calculate it, and what assets count or do not count toward it. Clear examples and practical guidance will help advisers and their teams navigate these rules confidently.
What Is Regulatory Assets Under Management (RAUM)?
RAUM represents the total value of securities portfolios over which an investment adviser provides continuous and regular supervisory or management services. Unlike general Assets Under Management (AUM) figures used for marketing or performance reports, RAUM follows a strict regulatory definition outlined in Form ADV.
The key difference is that RAUM includes only those assets where the adviser has ongoing responsibility, not just occasional advice or financial planning. This distinction ensures regulators see a true picture of the adviser’s active management responsibilities.
Why RAUM Matters for Investment Advisers
Understanding RAUM is critical because it directly influences several regulatory aspects:
Registration Requirements
Advisers must register with the SEC if their RAUM exceeds $110 million. Below that threshold, state registration usually applies. Accurate RAUM calculation ensures advisers meet the correct registration rules.
Filing and Disclosure Obligations
RAUM must be reported on Form ADV Part 1A. This disclosure affects how regulators monitor the adviser’s activities and compliance.
Regulatory Oversight
Regulators use RAUM to assess the adviser’s size, scope, and potential risk to investors. Larger RAUM often means more scrutiny.
Client Transparency
Clients rely on RAUM figures to understand the scale of the adviser’s operations and the level of ongoing management they receive.
Key Criteria for Inclusion in RAUM
To include assets in RAUM, they must meet three core conditions:
Securities Portfolio
The assets must be securities such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and similar financial instruments. Assets like real estate, commodities, or physical assets do not count.
Ownership or Contractual Authority
The adviser must have discretionary authority over the account or a contractual obligation to provide ongoing management services. This means the adviser can make investment decisions without client approval for each transaction.
Continuous and Regular Supervisory or Management Services
The adviser must provide more than occasional advice. This includes regular portfolio reviews, rebalancing, and proactive adjustments based on market changes or client goals.
Example
An adviser managing a client’s stock portfolio with monthly reviews and rebalancing exercises would include those assets in RAUM. Conversely, if the adviser only gave a one-time recommendation without ongoing involvement, those assets would not count.
What’s Not Included in RAUM?
Certain assets and services do not qualify for RAUM:
One-time or Episodic Advice
If the adviser provides advice only once or sporadically without ongoing supervision, those assets are excluded.
Nondiscretionary Accounts Without Ongoing Supervision
Assets where the adviser cannot make decisions without client approval and does not provide continuous management are not included.
Assets Managed Solely Through Financial Planning
If the adviser only offers financial plans without implementing or managing investments, those assets do not count.
Non-Securities
Physical assets like real estate for personal use, collectibles, or commodities are excluded.
Image Caption: A financial adviser carefully reviews a client’s securities portfolio to ensure accurate RAUM reporting.
How to Calculate RAUM
Calculating RAUM requires a systematic approach:
Identify Eligible Accounts
Review all client accounts to determine which meet the RAUM criteria: securities portfolios with discretionary authority and ongoing management.
Determine Asset Values
Use the market value of securities as of the calculation date. For mutual funds or ETFs, use the net asset value.
Exclude Ineligible Assets
Remove any assets that do not meet the criteria, such as non-securities or accounts without continuous supervision.
Aggregate Values
Sum the values of all eligible accounts to arrive at the total RAUM figure.
Practical Tip
Many firms calculate RAUM quarterly to keep filings accurate and up to date. Using portfolio management software that flags discretionary accounts can simplify this process.
Common Challenges and How to Address Them
Distinguishing Between Discretionary and Nondiscretionary Accounts
Advisers sometimes struggle to classify accounts correctly. Discretionary accounts allow the adviser to make investment decisions without client consent for each trade. Nondiscretionary accounts require client approval before any transaction.
Solution: Maintain clear documentation of account agreements and regularly review account statuses.
Handling Partial Discretion
Some accounts may have partial discretionary authority. For example, an adviser may manage only a portion of the portfolio.
Solution: Include only the portion of assets under discretionary management in RAUM.
Managing Complex Asset Types
Certain assets like private equity or hedge funds may pose valuation challenges.
Solution: Use the most recent reliable valuation and document the methodology.
Why Accurate RAUM Reporting Benefits Advisers
Accurate RAUM reporting helps advisers avoid regulatory penalties and audits. It also builds trust with clients and regulators by showing transparency and professionalism.
For example, an adviser who misreports RAUM may face fines or forced registration changes. On the other hand, clear RAUM reporting supports smooth regulatory reviews and can enhance the firm’s reputation.
Summary
Regulatory Assets Under Management (RAUM) is a key figure that defines the scope of an adviser’s active management responsibilities. It determines registration requirements, affects disclosure obligations, and guides regulatory oversight. Advisers must include only securities portfolios under continuous and regular management with discretionary authority.
By understanding what counts toward RAUM, how to calculate it, and common pitfalls to avoid, advisers can maintain compliance and provide clear, accurate information to regulators and clients. Regular review and documentation are essential to ensure RAUM figures reflect the adviser’s true management activities.
Next step: Review your firm’s current RAUM calculation process and ensure it aligns with regulatory definitions. Consider consulting compliance experts if you have complex accounts or uncertain classifications. Staying informed and precise with RAUM protects your firm and supports long-term success.
