Assets Under Management (AUM)

SEC guidelines leave room for interpretation on what may be included in AUM, but there are at least two important reasons why investors should be sure to understand an asset manager's method of calculating AUM.

First, investors are entitled to fair and transparent disclosure of an asset manager's true performance over time. Because many asset management companies compare the size of their AUM with competitors as a measure of success, accurate disclosure is especially important for correctly evaluating an asset manager's performance.

The CFA Institute has established ethical standards -- called the Global Investment Performance Standards (GIPS) -- that are especially useful to individual investors. The GIPS standards are a set of standardized, industry-wide ethical principles that provide investment firms with guidance on how to calculate and report investment results to prospective clients. Firms must comply with the CFA Institute's high ethical standards if they want to prepare their marketing materials according to GIPS (and advertise their compliance).

Second, many asset management companies charge management fees that are equal to a fixed percentage of AUM, making it especially important for investors to understand how the firm calculates AUM.