Assets Under Management (AUM) in Canada

AUM in the Context of Banks

The total market value of client assets managed by a bank on behalf of individual clients, commercial and institutional clients, generally through its wealth management, investment advisory, and asset management divisions. It is an important indicator of the strength of the bank’s wealth management division.

AUM in the Context of Asset Management Companies

Assets Under Management (AUM) refers to the total market value of financial assets managed by an investment firm, brokerage, wealth management company, or portfolio manager on behalf of its clients.

AUM typically includes assets such as stocks, bonds, cash, and other investable assets. When a bank or other financial institution has a significant AUM, it indicates that many investors trust it with their investments, which in turn attracts more investors. AUM is also linked with revenue, since most investment companies charge fees as a percentage of the AUM.

When assessing a financial institution, AUM serves as an important indicator of its scale and client confidence, which can complement other financial health metrics such as NIM (Net Interest Margin), efficiency ratio, and leverage ratio.

The assets under management in Canada are upwards of $5 trillion, with RBC holding the largest share of AUM in Canada. Apart from the Canadian asset management companies, some international companies, such as BlackRock Asset Management and Fidelity Investments, also hold AUMs in Canada. Listed below are some of the largest asset management companies in Canada.

AUM in the Context of Funds

In the context of funds, such as mutual funds or pension funds, AUM refers to the total market value of all the investments held within the fund at a given time. It represents the combined value of assets contributed by all investors, adjusted for market performance, inflows (new investments), and redemptions (withdrawals).

AUM composition varies depending on the regulatory definition. In Canada, the Canadian Securities Administrators (CSA) require registered portfolio managers and investment fund managers to report their Assets Under Management (AUM) as part of regulatory filings. AUM in Canada typically only refers to the discretionary investments managed by a registered portfolio manager or investment fund manager. This includes both separately managed accounts (SMAs) and pooled investment vehicles like mutual funds, pension funds, hedge funds, or ETFs managed by the institution.

Discretionary asset management means that the portfolio manager has full decision-making authority and does not require the client’s approval to carry out any transactions. However, the manager must still operate within the fund’s investment mandate, and they must be able to justify their decisions in accordance with its rules and fiduciary responsibilities.

In Canada, unlike in some other countries, AUM does not include advisory or non-discretionary assets, which are held and serviced but are not actively managed. Since the institution provides only administrative, recordkeeping, or advisory services for such assets and does not have discretionary control over them, these are usually reported separately as AUA (Assets Under Administration) or AUC (Assets Under Custody).

Assets under management (AUM) include any investments actively managed by a bank or financial firm. This includes stocks, bonds, mutual funds, retirement accounts, and trust portfolios — essentially, any client money that is being managed rather than just held. Regular savings accounts or simple deposits are usually not included in AUM since they are not actively managed investments.

In finance, AUM is a critical indicator of an institution’s size, performance, and credibility, and investment firms are always looking to expand their AUM. The key reasons why it is important are:

1. AUM Demonstrates Size and Market Influence: If an investment company has a higher AUM than its peers, it usually means it has more influence and a broader market reach.
2. AUM as a Measure of Success: If a company’s AUM has grown significantly over a certain period of time, it demonstrates its expansion and success in the market. It is a tool to evaluate how the firm has performed over time and how successful its fund management strategies have been.
3. Impacts Revenue and Profitability: Investment firms typically charge management fees as a percentage of the AUM; thus, a higher AUM typically means higher income through fees and overall greater profitability. A higher fee income also means the company has more capital to reinvest in technology, talent, acquisitions, etc, thereby enhancing its capacity for future growth.
4. Demonstrates Client Trust: A higher AUM signals that a large number of clients have entrusted the firm with their money, as they have confidence in the firm's performance and investment approach.
5. Higher AUM Can Correlate with Stronger Liquidity: While liquidity largely depends on the nature of the underlying assets, firms with higher AUM typically manage more diversified portfolios and maintain greater cash reserves. This allows them to meet client redemptions and operational needs efficiently without selling illiquid assets. In contrast, companies with a smaller AUM might face risk when there are high levels of redemptions, threatening the overall stability of operations.
6. Indicator of Market Credibility and Reputation: A higher AUM also enhances the investment company’s image and reputation in the market, bringing prestige. This, in turn, may attract more clients.
7. Operational and Regulatory Benchmark: AUM is a metric used by analysts and regulators to assess an investment company’s operational capacity, financial strength, and compliance with industry standards.

AUM is calculated as the total market value of all assets overseen by a financial institution or portfolio manager on behalf of its clients. It measures the real-time value of the assets managed by an asset management entity. The calculation may vary slightly based on regulatory factors, the structure of the financial institution, and the services provided.

Basic Formula:

AUM = ∑(Market Value of Client Assets Managed)

AUM is not a constant number and changes all the time due to:

• Changing market values of the underlying assets
• Client deposits and withdrawals
• Currency exchanges when portfolios include global assets

Due to the constantly evolving nature of AUM, companies tend to report AUM at the end of a day or a period.

While Assets Under Management (AUM) and Total Assets may sound similar, they are completely different financial metrics. While AUM measures the market value of client assets managed by an investment company, total assets refer to the assets that the company itself owns, which excludes its clients’ funds. Total assets reflect the institution’s own financial position, and typically include assets such as cash, property, equipment, etc.

Total assets are reported on the company's balance sheet, while AUM reflects a company’s investment management activity and is disclosed in regulatory filings and reports.

Why is AUM important for investors?

Investors consider AUM one of the key factors while evaluating an investment firm or a fund, as it is an indicator of their size, stability, and investor confidence. A company’s AUM can help gauge its credibility by comparing it with others in terms of market presence.

How does AUM affect management fees?

It is typical of investment companies to charge management fees as a percentage of the AUM. For example, a 1% annual fee on $1 million in managed assets equals $10,000 per year. This means that a higher AUM will result in a greater revenue for the investment company.

Are there different AUM fee tiers?

Yes. Several investment companies use tiered fee structures based on the size of the portfolio. For example, a company may charge its clients 1% management fee on the first $1M, 0.75% on the next $2M, and 0.5% above $3M, making the structure rewarding for clients with a larger portfolio.