An Asset Under Management (AUM) charge is any fee that investment advisers, mutual funds, and other financial professionals charge as a percentage of the amount of assets they have under management for a particular client). AUM is calculated by taking the total market value of the assets an investment company, financial adviser, or institution manages on behalf of their clients/investors and multiplying it by the percentage of the fee. Most fees are expressed in hundredths of a percentage point, known as basis points (bps). These are paid periodically and can be assessed daily, monthly, quarterly or as otherwise agreed upon.
How are fees for AUM charged?
AUM charges are taken out of your account as a percentage of the account’s asset value. Suppose your adviser charges a 1% of AUM or 100 bps and your account has $100,000 in it. This means that $1,000 would be taken out of your account for the year.*
AUM charges are often hidden in 401(k) plans in different forms: investment management fees, mutual fund expense ratios, custodial fees, and administrative expenses. In fact, the average industry AUM charge is 1.67% which is 167 basis points. You should take a careful look at your plan disclosure documents and learn exactly what’s being charged to your account. Note that Guideline does not impose any additional AUM charges for its 401(k) services! Mutual fund companies, however, may charge an expense ratio calculated by dividing the fund’s total operating expenses by the fund’s AUM. The average expense ratio for a Guideline managed portfolio is 0.067%.
*Note: example assumes no change in account value and a one-time charge at the end of the year. Though the published rate is annualized, fees may be taken out more frequently on a pro-rated basis – generally daily if charged by a mutual fund company, or quarterly if by an investment adviser. Therefore the actual amount you pay each year can vary, since your account balance varies daily