Assets Under Management(AUM) is the holy grail of the financial services industry. The quest to accumulate AUM has shaped the products and influenced the sales strategy.
A couple of decades ago the golden age of the stock broker started to fade. Charging high commissions for buying and selling hot stocks was being replaced by charging a percentage of total assets for expertise in managing a diversified portfolio giving the broker come consultant/adviser the freedom to buy and sell as needed.
And now we are in the thick of AUM. A financial services firm’s prosperity hinges on total AUM. The regulators set standards based on AUM. The service level an investor enjoys is depended on AUM. Most investors cannot even get into the game because they don’t have enough AUM. Imagine not being able to see a doctor because you were too unhealthy? Maybe not the best analogy....imagine not being able to see a doctor because your net worth was to low!!? And then for those investors who do have enough or even a lot, you are probably paying more money then someone with less for the same level of service. Say you have $100,000 and your fee is 1%, you will pay $1000 per year. Someone with $200,000 will be paying $2000 for the same product and service. Same goes for the uber-rich. Why do you pay more dollars then someone with a little less uber than you?
This way of doing business makes it easy for all parties physically and psychologically to collect and pay fees. The collection is systematic and un-stressful because the amount and the withdrawal is all but invisible. Many an investor would rather not have to think about it. The aversion to addressing the costs of life is a separate conversation.
This craving for AUM makes it very difficult for financial professionals to give conflict free advice. Faced with the potential for a large account, few would be objective enough to offer a solution that did not entail an ongoing regular fee. Controlling the assets means control of the billing.
We’ve come a long way from the era of stock brokers, stock picking and now even money managers who are trying to differentiate by beating the index are having a harder time justifying their existence. The process of investing in the capital markets is becoming a commodity. It’s more like a way to get a higher compound interest on your savings than a way to build wealth. Companies like Blackrock, Vanguard, and Fidelity have all but reduced the asset based fees to zero on their index funds. And artificial intelligence is proposing portfolios better than people ever have. This does not mean the personal touch is not necessary, it’s in fact more necessary than ever. Money is a deeply emotional experience and should be treated accordingly.
If you have $10 million invested why should you pay more than someone who has $9 million invested....the service level and product is exactly the same. If you have little to no money to invest why should you be left out in the cold. Wouldn’t you pay a few hundred dollars now to know how to have 100s of thousand dollars later?
Think beyond the status quo. Ask what you want to feel now and what you will need in the future. Make sure you are getting what you pay for, rather than just being an asset under someone’s management. Make no mistake there are those of you who have and are great advisers. Advisers who put the mission of helping people improve their future ahead of increasing their AUM.
The only AUM that you should be affected by are the assets under your management!