Assets under management might indicate success, but the focus on that statistic could be myopic
The financial industry has long looked at assets under management (AUM) as a measure of achievement. But some advisors are questioning the validity of the measure, especially with regard to assessing competence and client service.
“My business is built on my clients’ trust in me, not AUM,” Thomas Balcom, head of Florida-based 1650 Wealth Management, told Financial Advisor IQ. “I have clients who could work with Goldman Sachs but they choose me because we like and trust each other.”
To many in the financial services industry, AUM is useful shorthand in identifying financial firms with good standing. The larger the number, the more implied success and longevity; the smaller the AUM, on the other hand, the less experienced or ambitious the firm is assumed to be.
However, a large AUM doesn’t necessarily equate to superior service. “The AUM total has become a proxy for success, especially as a substitute for knowledge or trust,” said Philip Petrowski of Wisconsin-based Blackhorn Partners. “Pushing volume instead of personal relationships just means you could be doing the same thing wrong in repetitive fashion.”
For Eric Roberge of Massachusetts-based Beyond Your Hammock, the industry’s preoccupation with AUM is understandable given large firms’ focus on immediate revenue. As for independent firms, he noted that higher AUM provides “buying power which can lower expenses from an economy-of-scale perspective.”
But he went on to say that clients want “a good person, a coach, someone who can help educate them and guide them toward achieving their goals” — and in that context, AUM is totally divorced from true financial planning.
Asked how AUM figures in its recruiting efforts, a Wells Fargo representative told Financial Advisor IQ that when it comes to hiring seasoned advisors, “AUM is but one of many metrics we consider, such as experience, production, mix of business assets and their Central Depository Registry records.” When it comes to hiring young and inexperienced FAs, the spokesperson said the firm does not factor in AUM.
“[A] good financial planner can only reasonably provide comprehensive service to 50 to 100 clients,” said David Bize, an Oklahoma-based advisor with First Allied. He noted that by focusing solely on investment management, raised investment minimums, and took on additional financial planners, he could easily triple his current AUM of US$70 million.
But he said he doesn’t want to go against the “purpose” of his business: “[T]o establish a comprehensive financial planning practice in which I personally know and am integrally involved with serving my clients.”
Related stories:
Why trust isn't enough for Canadian advisors
Why the financial industry needs a bit of flexibility
“My business is built on my clients’ trust in me, not AUM,” Thomas Balcom, head of Florida-based 1650 Wealth Management, told Financial Advisor IQ. “I have clients who could work with Goldman Sachs but they choose me because we like and trust each other.”
To many in the financial services industry, AUM is useful shorthand in identifying financial firms with good standing. The larger the number, the more implied success and longevity; the smaller the AUM, on the other hand, the less experienced or ambitious the firm is assumed to be.
However, a large AUM doesn’t necessarily equate to superior service. “The AUM total has become a proxy for success, especially as a substitute for knowledge or trust,” said Philip Petrowski of Wisconsin-based Blackhorn Partners. “Pushing volume instead of personal relationships just means you could be doing the same thing wrong in repetitive fashion.”
For Eric Roberge of Massachusetts-based Beyond Your Hammock, the industry’s preoccupation with AUM is understandable given large firms’ focus on immediate revenue. As for independent firms, he noted that higher AUM provides “buying power which can lower expenses from an economy-of-scale perspective.”
But he went on to say that clients want “a good person, a coach, someone who can help educate them and guide them toward achieving their goals” — and in that context, AUM is totally divorced from true financial planning.
Asked how AUM figures in its recruiting efforts, a Wells Fargo representative told Financial Advisor IQ that when it comes to hiring seasoned advisors, “AUM is but one of many metrics we consider, such as experience, production, mix of business assets and their Central Depository Registry records.” When it comes to hiring young and inexperienced FAs, the spokesperson said the firm does not factor in AUM.
“[A] good financial planner can only reasonably provide comprehensive service to 50 to 100 clients,” said David Bize, an Oklahoma-based advisor with First Allied. He noted that by focusing solely on investment management, raised investment minimums, and took on additional financial planners, he could easily triple his current AUM of US$70 million.
But he said he doesn’t want to go against the “purpose” of his business: “[T]o establish a comprehensive financial planning practice in which I personally know and am integrally involved with serving my clients.”
Related stories:
Why trust isn't enough for Canadian advisors
Why the financial industry needs a bit of flexibility
