Understanding Assets Under Administration: A Comprehensive Guide

What Are Assets Under Administration?

Assets under administration (AUA) is a crucial financial metric that plays a significant role in the investment industry. It refers to the total market value of assets that a financial institution or investment company manages and oversees on behalf of investors. AUA includes a wide range of financial products such as mutual funds, exchange-traded funds (ETFs), pension funds, and more.

How Do Assets Under Administration Differ from Other Metrics?

Assets under administration should not be confused with assets under management (AUM) or assets under advisement (AUA). While these metrics are related, they have distinct differences.

Assets Under Management (AUM)

AUM refers to the total market value of the investments that a person or entity handles on behalf of investors. It primarily focuses on the assets actively managed by a portfolio manager or investment company. AUM is a measure of the investment expertise and success of a financial institution or portfolio manager.

Assets Under Advisement (AUA)

AUA, on the other hand, refers to the total market value of assets that a financial advisor provides advice on but does not directly manage. Financial advisors who offer investment advice without managing the assets themselves typically use AUA as a metric to attract prospective clients.

Calculating Assets Under Administration

The calculation of AUA involves aggregating the market values of all the assets that a financial institution or investment company administers. This includes assets held in custody or under administration but not actively managed. The calculation can be complex, as it requires gathering data from various sources and taking into account any fees or charges associated with the administration of the assets.

Importance of Assets Under Administration

Assets under administration play a vital role in the investment industry, providing several key benefits:

• Transparency: AUA provides transparency and accountability, allowing investors to track the market value and performance of their assets.
• Risk Management: Financial institutions and investment companies use AUA to assess and manage the risks associated with the assets they administer.
• Compliance: AUA helps ensure compliance with regulatory requirements and industry standards.
• Client Confidence: Investors often seek financial institutions or investment companies with a strong track record of administering assets, as it instills confidence and trust in their services.

Comparing Assets Under Administration and Assets Under Management

While AUA and AUM are distinct metrics, they are closely related and can provide valuable insights when analyzed together:

• Scope: AUM includes assets that are actively managed, while AUA encompasses both actively managed assets and those held in custody or under administration.
• Responsibility: Financial institutions and investment companies have direct responsibility for assets under administration, while assets under management are actively managed by portfolio managers or investment professionals.
• Performance: AUM focuses on the investment performance of actively managed assets, while AUA provides a broader view of the overall market value of assets under administration.

How Assets Under Administration Benefit Investors

Investors can benefit from assets under administration in several ways:

• Expertise and Guidance: Financial institutions or investment companies with a significant AUA demonstrate their expertise and ability to administer and safeguard assets effectively.
• Risk Management: Assets under administration are subject to risk management practices, ensuring that investors' assets are protected and managed in line with their financial goals.
• Transparency and Reporting: AUA provides investors with regular reporting and updates on the market value and performance of their assets, enhancing transparency and enabling better decision-making.
• Regulatory Compliance: Financial institutions with a substantial AUA are more likely to comply with regulatory requirements, providing investors with peace of mind and assurance that their assets are managed in compliance with industry standards.

Conclusion

Assets under administration (AUA) is a critical metric in the investment industry, encompassing the total market value of assets administered by financial institutions or investment companies. It differs from assets under management (AUM) and assets under advisement (AUA) but provides valuable insights when analyzed together. AUA offers transparency, risk management, compliance, and client confidence. Investors can benefit from AUA through expertise and guidance, risk management, transparency and reporting, and regulatory compliance. Understanding AUA is essential for investors seeking reliable and trustworthy financial institutions to administer their assets.