Wagner Logo

Follow us on Twitter View our profile on LinkedIn Like us on Facebook 




The Wagner Law Group

The Wagner Law Group is a nationally recognized practice in the areas of ERISA and employee benefits, estate planning, employment, labor and human resources and investment management.


Established in 1996, The Wagner Law Group is dedicated to the highest standards of integrity, excellence and thought leadership and is considered to be amongst the nation's premier ERISA and employee benefits law firms. The firm has seven offices across the country, providing unparalleled legal advice to its clients, including large, small and nonprofit corporations as well as individuals and government entities worldwide. The Wagner Law Group's 29 attorneys, senior benefits consultant and four paralegals combine many years of experience in their fields of practice with a variety of backgrounds. Seven of the attorneys are AV-rated by Martindale-Hubbell and six are Fellows of the American College of Employee Benefits Counsel, an invitation-only organization of nationally recognized employee benefits lawyers.  Seven of the firm's attorneys have been named to the prestigious Super Lawyers list for 2017, which highlights outstanding lawyers based on a rigorous selection process.




Contact Info

The Wagner Law Group


  Integrity | Excellence



Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Washington, D.C.

Tel: (202) 969-2800


Fax: (202) 969-2568

 800 Connecticut Avenue, N.W.

Suite 810

Washington, D.C. 20006



Tel: (847) 990-9034

Fax: (847) 557-1312

190 South LaSalle Street

Suite 2100

Chicago, IL 60603



Palm Beach Gardens 

Tel: (561) 293-3590
Fax: (561) 293-3591
7108 Fairway Drive
Suite 125
Palm Beach Gardens, FL 33418



Tel: (813) 603-2959

Fax: (813) 603-2961

101 East Kennedy Boulevard

Suite 2140
Tampa, FL  33602 


San Francisco

Tel: (415) 625-0002

Fax: (415) 358-8300

300 Montgomery Street

Suite 600

San Francisco, CA 94104


St. Louis

Tel: (314) 236-0065

Fax: (314) 236-5743
25 W. Moody Avenue
St. Louis, MO  63119 








Calculating Regulatory Assets

Under Management




A question we frequently receive from our advisory firm clients is whether they are accurately calculating and reporting regulatory assets under management ("RAUM"). RAUM, as a metric, was first introduced by the Securities and Exchange Commission ("SEC") in 2012, and must be reported on Form ADV Part 1. Correct RAUM is important for several reasons. First, RAUM is one of the factors that determines whether an advisory firm must register with either the SEC or state securities regulators. Another reason is that inaccurate reporting of RAUM may result in the revocation of the adviser's registration or other disciplinary actions. Furthermore, over-stated RAUM, if used in a firm's marketing materials, may constitute a violation of the false advertising rules promulgated by the SEC. Advisory firms are competing for clients and are keen to develop products and identify ways to distinguish themselves from their competitors. Justified or not, potential clients may perceive sizeable RAUM as a measure of success or evidence that a particular firm is better prepared to provide financial expertise.


The SEC has specific rules as to how RAUM is determined. The Instructions to Form ADV state that RAUM should only include "the securities portfolios for which you provide continuous and regular supervisory or management services as of the date of filing of this Form ADV."


Securities Portfolio


In general, an account is considered to be a securities portfolio if at least 50% of the total value of the account consists of securities. Securities include any stock, bond, Treasury note, swap or futures contract. Cash and cash equivalents (i.e., bank deposits, certificates of deposit, banker's acceptances) are also treated as securities. Collectibles, real estate, commodities, fixed annuities and fixed indexed annuities are not securities and should not be included as RAUM.


Value of Portfolio

In certain circumstances, it may be appropriate to count less than the entire securities portfolio as RAUM. Advisers should include the value of each securities portfolio for which "continuous and regular supervisory or management services" (as discussed below) are provided. If an adviser provides "continuous and regular supervisory or management services" for only a portion of a securities portfolio, only that portion of the portfolio should be counted as RAUM. Also, if a part of the portfolio is managed by another adviser, the adviser should exclude that portion from RAUM. Real estate or businesses whose operations the adviser "manages" on behalf of a client but not as an investment should be excluded as well.


Continuous and Regular Supervisory or Management Services


The "continuous and regular supervisory or management services" condition of RAUM can be difficult to determine and can lead many advisers to inadvertently miscalculate RAUM - usually by inflating the calculation but oftentimes by understating it as well.


An adviser provides continuous and regular supervisory or management services with respect to an account if either:


  1. The adviser has discretionary authority over and provides on-going supervisory or management services; or
  2. The adviser does not have discretionary authority over the account, but does have on-going responsibility to select or make recommendations, based upon the needs of the client, as to specific securities or other investments the account may purchase and sell and, if such recommendations are accepted by the client, the adviser is responsible for arranging or effecting the purchase or sale.


In short, the adviser must have an on-going responsibility to the client and must possess the authority to execute the transaction.




The Instructions to Form ADV provide three factors to help analyze whether an adviser is meeting the "continuous and regular" requirement. No single factor is determinative and the specific circumstances should be viewed in their entirety.





Terms of the Advisory Contract


A factor that strongly suggests the provision of ongoing services is when the terms of the advisory contract explicitly state that the adviser is responsible for providing ongoing management services (e.g., not limited to a timeframe, not a one-time engagement). Thus, where ongoing services are intended, firms should ensure the agreement is free of any ambiguous language that might indicate otherwise.




Manner of Compensation


How an adviser is compensated is another factor used to determine whether ongoing services are being provided. The SEC has noted that compensation based on the time spent with a client (e.g., hourly fee may imply services are not ongoing) or established by retainer (e.g., compensation not primarily for asset management) suggests that continuous and regular supervisory or management services are not being provided.




Management Practices


Another factor is examining the adviser's actual practices to determine whether services are ad hoc or periodic rather than continuous and regular. The SEC has provided a nonexclusive list of examples of the adviser's continuous and regular supervisory or management services:


  • has discretionary authority to allocate client assets among various mutual funds;
  • does not have discretionary authority, but otherwise satisfies the definition of continuous and regular supervisory or management services and provides recommendations regarding client assets, if the adviser is responsible for arranging or effective transactions after the client accepts the recommendations;
  • allocates assets among managers (a "manager of managers"), but only if the adviser has discretionary authority to hire and fire managers and reallocate assets among them; or
  • is a broker-dealer and treats the account as a brokerage account, but only if the adviser has discretionary authority over the account.


The Instructions to Form ADV state that continuous and regular supervisory or management services are not provided for clients where the adviser provides:


  • market timing recommendations, but no ongoing management responsibilities;
  • impersonal investment advice;
  • guidance on initial asset allocation (without continuous or regular monitoring and reallocation); or
  • advice on an intermittent or periodic basis (i.e., upon request, in response to a market event, or just at pre-specified points in time, like quarterly or annual reviews).



Calculating RAUM




After identifying the securities portfolios for which continuous and regular supervisory or management services are provided, the amount of RAUM can be calculated. RAUM should be based on their fair market value using values calculated within 90 days prior to the filing of Form ADV. The adviser should be consistent in using the same amount/value for client performance reporting and calculating fees. RAUM should be calculated on a gross basis, that is, without reducing the value by any margin loans or other indebtedness related to the account.




Note that Item 4.E of Form ADV Part 2 asks for the "amount of client assets you manage on a discretionary basis and the amount of assets you manage on a non-discretionary basis."   This amount represents assets under advisement or AUA (although this term is not used in the Instructions) and may be different from RAUM required to be disclosed on Part 1. If the firm uses a different methodology from that used for RAUM when calculating AUA, the firm must retain documentation describing the methodology. Under Rule 204-2 of the Investment Advisers Act of 1940, the documentation should be kept for a period of not less than five years.








The SEC has spoken via no-action letters and enforcement proceedings on various aspects of RAUM calculation, but it is still an area for which there exists some uncertainly.  It may be wise for advisory firms that have not critically self-assessed their reported RAUM calculation to do so.




This Newsletter is protected by copyright. Material appearing herein may be reproduced with appropriate credit.


This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.