AUM Is Not For You

Posted on by Marie Weitzman

One of my favorite year-end tweets came from my friend, Russell Kroeger. I’ve had the pleasure of meeting Russell on several occasions. He is a massively talented financial advisor and one of the most genuine people you’ll meet. Here’s what he had to say about his growth as an advisor in 2019: 

Russell touches on something that’s been on my mind, which is how advisors, the media and the profession-at-large heavily use assets under management (AUM) as “the” metric instead of “a” metric for growth.

For established advisors and large RIAs, I understand how AUM bears the most significance since it’s the one that’s generally most linked to a firm’s top line. So, for firms with enough in assets, it is very useful for measuring growth over both the short and long-term. But you have to remember, the $1 billion firm is scaling to $2 billion while the $1 million firm is just trying to stay in the game. So, for young advisors and those early in their careers, it’s silly to think that AUM is “the” metric to use for growth. It’s why Russell’s tweet hits the mark for next-gen advisors. It’s because it’s based in the long-game mentality required to thrive in today’s environment.

If we’re going to truly usher in the next era financial professionals, we need to begin focusing on growth metrics that express more than just how much money is managed. And even though I can use AUM for my own firm, I can assure you that I am much more interested in using my clients’ personal and professional growth as measuring sticks. It’s the kind of growth can’t be measured by assets alone but rather, as Russell points out, through the events and accomplishments that eventually leads them to larger balance sheets.

Unfortunately, a lot of the trouble with non-AUM metrics is that are not as easy to translate to into revenue like AUM. They are also far less catchy for the purposes of a byline. Because in the world of finance, money speaks the loudest. So the number of clients you’ve gained or life events you’ve helped make happen in any given year will likely fall on deaf ears. That is unless we make a contentious effort to consistently promote them. That’s how we shake ourselves of being defined by a metric that fails to tell the whole story.

AUM also distorts the value we offer clients. Advisors today are finding new and different ways to generate revenue that’s better linked to value. Growing is the number of firms that will make the vast majority of their revenue from planning and advisory fees, not asset management fees. Think about a practice generating $1 million dollars in revenue but doesn’t manage a single dollar in client assets. AUM would literally tell you nothing about its success.

Lastly, AUM can be a distraction from work that advisors need to put into their businesses. It draws focus away from the things that generate revenue in the first place. Asset gathering is the reaping, not the sowing. That long-term incentive package you just helped negotiate for a young client is a massive win today, but those financial benefits will take years to vest. It’s much more important at this stage to continue to develop and define the type of business you want and the types of clients you want to work with because it establishes everything from how you will manage your practice to how you market it.

AUM is not dead, nor do I believe it’s dying a quick death. Seismic shifts in this industry, while taking place right under our feet, take a lot of time to morph into new standards. But what I hope will quickly change is how we think about AUM as a metric for advisor growth and, ultimately, success. It’s hard enough for young advisors to overcome all the barriers we’ve put into place to grow. I think it’s about time we take this one down.

Come generate some nervous laughter on Twitter:

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