Glossary term
AUM Fee
An AUM fee is an advisory fee charged as a percentage of the assets an adviser manages for a client.
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What Is an AUM Fee?
An AUM fee is an advisory fee charged as a percentage of assets under management. If an adviser manages a client's portfolio, the fee is typically calculated by applying an annual percentage rate to the assets the adviser manages.
For example, a 1% annual AUM fee on a $500,000 account would equal $5,000 per year before considering any tiering, billing frequency, market changes, or other costs. The fee is often deducted directly from the account.
Key Takeaways
- An AUM fee is based on the value of assets an adviser manages.
- The fee usually rises when managed assets rise and falls when managed assets fall.
- It is common in ongoing investment management relationships.
- Clients should compare the fee with services provided, investment costs, and conflicts.
How AUM Fees Work
AUM fees are often quoted as an annual percentage, such as 0.75%, 1%, or another rate. The adviser may bill quarterly, monthly, or on another schedule. The fee may be calculated using beginning-of-period assets, ending assets, average assets, or another method described in the advisory agreement.
Some advisers use tiered schedules, where the percentage declines as assets grow. Others charge the same rate across all managed assets. The exact calculation should be disclosed in the adviser's Form ADV Part 2A and advisory agreement.
What Changes the Dollar Cost
Factor | Effect on fee |
|---|---|
Portfolio value | Higher managed assets usually mean a higher dollar fee. |
Fee rate | A higher percentage increases annual cost. |
Billing method | Timing and valuation method can affect the amount charged. |
Included services | Planning, tax coordination, or broader advice may or may not be included. |
Incentives to Understand
An AUM fee can align adviser compensation with portfolio growth, but it also creates incentives. The adviser may earn more when a client transfers more assets into the managed account and less when a client pays down debt, buys an annuity elsewhere, gifts assets, or keeps cash outside the advisory relationship.
AUM fees also compound as a drag on returns because they are charged repeatedly over time. Even a small percentage can become meaningful over a long investment horizon, especially when combined with fund expenses, trading costs, platform fees, or other account costs.
The right question is not whether an AUM fee is good or bad. It is whether the cost, services, investment approach, and incentives make sense for the client.
The Bottom Line
An AUM fee charges a percentage of assets under management for advisory services. It is common and easy to understand at a high level, but clients should convert the percentage into dollars and review what the fee actually covers.