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A Brief Investor’s Guide To AUM

It is important for investors to be as informed as possible on all aspects relating to their wealth management, and that means learning pertinent investment terminology. One term that you might have come across, either in the media or in conversation with friends, is “assets under management”, referred to colloquially by its initials AUM.

As one of many considerations an investor must make in order to determine their perfect wealth management firm, as well as their preferred ETF or mutual fund, AUM is a useful metric for both beginner and seasoned investors. This article will venture to define AUM, as well as assess its importance, both in choosing a wealth manager and in choosing a fund.

What Is AUM?

Assets under management, as the name might suggest, is the total amount in market value that a given wealth management company (or asset manager, investment company, mutual fund, etc.) manages for its investors/clients. AUM can be used, broadly, to track the size of a wealth management firm, and consequently its success. After all, a good indication of a firm’s capability is the amount of investment to which it has been entrusted (as compared to its past AUM), although a growing amount of AUM can come with its particular problems.

Does AUM Matter When Choosing A Wealth Manager?

AUM is just a figure, but you can decode it a number of ways to fit your personal purposes and requirements. In general, firms with larger AUM might take a less personalized approach to their investors, which isn’t always what an investor wants, and they might focus unduly on growth as opposed to taking a more holistic approach to wealth management. Conversely, firms with a smaller AUM might suffer from poor succession plans, or they might not have the same specialized investment vehicles as the big ones.

Whether you go with big or boutique is ultimately up to you; to alleviate some of the decision-making stress, choose a financial services company like Wealth Management Canada that can assess and vet prospective wealth management companies for you. They will be able to provide you with the AUM of a firm as well as other relevant metrics.

Does AUM Matter When Choosing ETFs Or Mutual Funds?

This is one of those questions that gets bandied around often in investment articles: does the size of the fund matter? Some investment experts are of the opinion that funds can get too large and unwieldy, the fund manager’s ability to choose effectively becoming compromised the more the fund grows. Others maintain that the larger a fund grows, the more efficient it becomes, since they generally carry smaller total expense ratios (TERs). Again, the choice is yours to make, and with the aid and guidance of a reliable wealth manager, the decision shouldn’t be as complicated as it seems at first.

To conclude, AUM can be a helpful piece of information when choosing either a wealth management company or a fund, though exactly how you choose to use that information will depend on your personal requirements.

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About the Author: Praveen Unnikrishnan

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