How Much Money Does the Average Financial Advisor Manage?
Unpack the significance of assets managed by financial advisors. Understand industry benchmarks and what AUM reveals about an advisor's practice.
Financial advisors help individuals manage wealth and achieve financial objectives. The term “money managed” refers to Assets Under Management (AUM), a primary metric in the financial advisory industry. AUM represents the total market value of investment assets a financial professional oversees for clients. Understanding AUM provides a general indication of a firm’s scale and its operations.
Understanding Assets Under Management (AUM)
Assets Under Management (AUM) represents the total market value of investments that a financial institution or individual advisor actively manages on behalf of clients. AUM includes marketable securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs), along with cash or cash equivalents held for investment purposes. Assets like personal real estate or employer-sponsored plans not directly managed by the advisor are usually excluded from AUM calculations.
AUM serves as a measure of an advisor’s scale and can directly influence their revenue, as fees are often charged as a percentage of these managed assets. For clients, an advisor’s AUM can be seen as an indicator of their experience and the size of their practice, though it is not the only factor to consider.
Average AUM Across Different Advisor Types
The average Assets Under Management varies considerably among different categories of financial advisors due to differing business models and client focuses. Advisors affiliated with large brokerage firms, often called wirehouses, reported a higher average AUM of $198 million per advisor, significantly exceeding the industry-wide average of $88.1 million. This reflects a trend where wirehouses focus on serving more affluent investors to enhance productivity.
Advisors operating within regional broker-dealers managed an average of $89 million in client assets, while independent brokers averaged $47.9 million. Registered Investment Advisors (RIAs) operating independently also exhibit varying AUMs; for instance, RIA firms managing $5 billion or more reported an average AUM of $183.7 million per advisor.
Advisors specializing in high-net-worth (HNW) clients typically manage a larger volume of assets per client, contributing to higher individual AUM figures. These clients often have complex financial needs requiring comprehensive wealth management services. Conversely, advisors primarily serving mass affluent clients, who have more modest investable assets, generally have lower average AUM per client, necessitating a larger number of clients to achieve comparable overall AUM.
Factors Shaping an Advisor’s AUM
Many elements contribute to an individual financial advisor’s total Assets Under Management. An advisor’s experience often correlates directly with their AUM, as seasoned professionals build larger client bases and manage more substantial portfolios over time. A long track record and consistent performance attract and retain clients with greater assets.
Specialization also plays a significant role; advisors focusing on specific niches, such as ultra-high-net-worth individuals, may develop higher average AUM per client due to their target demographic’s concentrated wealth. The firm’s structure can influence AUM, with advisors in larger firms potentially benefiting from established referral networks and marketing support. Geographic location also affects AUM, as wealthy areas offer greater opportunities for advisors to attract larger accounts.
The advisor’s fee structure, especially if AUM-based, impacts the emphasis on growing managed assets. AUM-based fees, typically ranging from 0.5% to 1.5% annually, align the advisor’s interest with client growth and incentivize asset accumulation. Some advisors implement tiered AUM fee schedules, where the percentage charged decreases as managed assets increase, encouraging clients to consolidate more wealth with the advisor.
How AUM Information Helps You
Understanding a financial advisor’s Assets Under Management offers valuable insights when evaluating potential financial professionals. A substantial AUM can indicate an advisor’s experience and stable practice, suggesting a history of attracting and retaining clients. It also provides clues about the typical client profile, with higher AUM often correlating with a focus on individuals with significant wealth. A growing AUM can signal a firm’s financial strength and popularity.
However, AUM should not be the sole determinant in selecting a financial advisor. It is important to consider other aspects, such as the advisor’s fee structure—whether they charge AUM-based fees, flat fees, or hourly rates—and the specific services included. Evaluate their fiduciary duty, professional certifications, communication style, and seek client testimonials to gain a comprehensive understanding of their approach and suitability for your financial needs.