26 – FUM based fees: what are they?

FUM stands for Funds Under Management. (We know you now this, but we wrote it down for all other readers who aren’t as smart as you).

As the name suggests, a FUM-based fee is calculated as some proportion of the (non-geared) FUMs to which financial advice relates. To give a very simple example: an adviser may charge an FUM-based fee of 1% of investment assets. A client with $100,000 of assets invested would be charged a fee of $1000. A client with $250,000 of assets invested would be charged a fee of $2500, etc.

Typically, FUM-based fees are linked to assets that are managed on platforms or within wrap accounts. There is no particular need for this to be the case: theoretically, FUM-based fees can be tied to assets held outside those media. But this is the way they tend to be implemented. One reason for this is that the platform tends to have a calculation and/or payment mechanism for the adviser built in. And the nature of the platform also lends itself to percentage calculations that are used to identify the fee.

Non-equity assets, such as property, are typically harder to price and this makes the FUM fee base a harder one to implement. For example, property might need to be revalued in some way before FUM-based fees can be increased.

FUM-based fees are a common way for institutionally-aligned financial advice to be priced.

The Dover Group