Form ADV: rebuild regulatory AUM without calling it equity
Regulatory assets under management, or RAUM, is a defined reporting measure. It is not simply client equity, fee-paying assets or the investment adviser’s own balance sheet. A reconstruction should begin with eligible portfolios and the scope of management services, then apply the required valuation basis.
This guide uses Part 1A Instruction 5.b of the SEC’s Form ADV instructions marked July 2024, read on October 26, 2026. It explains a U.S. regulatory disclosure calculation, not a determination of any adviser’s registration obligation. All portfolios, commitments and amounts below are hypothetical millions.
Create a portfolio-eligibility tree
Instruction 5.b.(1)–(3), printed pages 19–21 addresses securities portfolios, their managed value and continuous and regular supervisory or management services. The worksheet needs separate decisions for portfolio eligibility, management-service scope and amount.
For a non-private-fund account, the securities-portfolio test generally asks whether securities make up at least half of its total value; the instruction permits cash and cash equivalents to be treated as securities for that test. Private funds receive specific treatment, including their assets and qualifying uncalled commitments.
Do not screen out a portfolio merely because the adviser receives no compensation, the client is non-U.S., or the account is proprietary or family-owned. The instruction expressly includes those categories when the relevant conditions apply. Those features are not substitutes for the service and portfolio tests.
Conversely, a business relationship does not bring every customer’s asset into RAUM. Identify what the adviser actually manages on a continuous and regular basis. A client with several accounts or several managers needs an account and managed-portion map, not one number copied from a marketing client-total.
Work a private-fund gross-to-net bridge
Assume a private fund has current assets of 80, borrowing of 30 and contractual uncalled investor commitments of 20. Assume the adviser continuously and regularly manages the whole fund, the values are compatible and there are no other liabilities or adjustments in this simplified example.
| Component | NAV bridge | RAUM bridge under stated assumptions |
|---|---|---|
| Current assets | 80 | 80 |
| Borrowing | −30 | No subtraction |
| Qualifying uncalled commitments | Not current NAV assets in this example | +20 |
| Result | 50 | 100 |
NAV is 80 − 30 = 50. RAUM is 80 + 20 = 100. The difference of 50 consists of the 30 liability subtraction used in NAV but not RAUM, plus the 20 commitment included in the specified RAUM treatment.
The instruction’s portfolio-value and private-fund provisions prohibit deducting indebtedness or accrued unpaid liabilities for this calculation and include the specified uncalled commitments. The example assumes the commitments meet that definition; a general plan to raise money is not enough.
RAUM of 100 is not 100 of cash available for investment today. The 20 is an uncalled obligation, and the 30 borrowing remains economically relevant even though it is not subtracted in this measure. Nor does 100 establish the owners’ residual claim or what the adviser could collect in fees.
Follow a capital call without double counting
Start from the same fund and suppose 5 of the existing commitment is called, paid into the fund and retained as cash. Assume no expenses, market movement, new commitment or debt change. Current assets become 85 and the remaining uncalled commitment becomes 15.
RAUM remains 85 + 15 = 100. NAV becomes 85 − 30 = 55. The call changes the location of an already counted commitment rather than necessarily creating new RAUM. Adding the old 20 to the new 85 would incorrectly produce 105.
This is a controlled identity, not a prediction that actual capital calls leave RAUM unchanged. Expenses, asset revaluation, new commitments, withdrawals or debt-financed purchases can change the total. Record those mechanisms separately rather than labeling every increase “new client inflows.”
The same discipline helps with a borrowing example. If the fund borrows an additional 10 and retains the proceeds, assets rise to 90 and liabilities to 40, leaving NAV at 50 before other changes. With the original uncalled 20 unchanged, the hypothetical RAUM becomes 110. A gross measure can grow while equity does not.
Test a mixed ordinary account separately
Consider a different non-private-fund account containing securities of 6, cash of 1 and other investments of 3, total 10. Assume the entire account receives the qualifying continuous and regular services. With cash included for the permitted eligibility test, the test proportion is 7 / 10 = 70%.
Once the portfolio and services qualify under these assumptions, the relevant managed portfolio value is 10, not merely the 7 used in the test. Do not confuse an eligibility numerator with the resulting amount included. The instruction itself provides a worked ordinary-account example of this distinction.
If a documented portion is managed by another person, assess the managed portion under Instruction 5.b.(2). The existence of total account value 10 does not authorize including assets outside the adviser’s qualifying service scope. Do not apply the private-fund commitment treatment automatically to an ordinary client promise to invest later.
Keep eligibility status, full portfolio amount and included managed amount as separate fields. This prevents a spreadsheet from replacing every qualifying portfolio with its securities-only subtotal or every client relationship with its total wealth.
Distinguish ongoing management from occasional advice
Instruction 5.b.(3) describes the relevant service criteria and examples. Discretionary authority accompanied by ongoing services differs from an initial allocation without continued monitoring or an occasional recommendation.
An infrequently traded buy-and-hold account can still receive ongoing management. Trade frequency alone cannot decide inclusion. Conversely, a large account receiving only an isolated recommendation is not automatically managed continuously because its owner has a long relationship with the firm.
Use the contract, actual practices and responsibility for recommendations and implementation together. If they disagree, preserve the conflict rather than choosing the document that maximizes RAUM. A label such as “advisory client” does not resolve the detailed service question.
The adviser’s own operating cash and equipment are not automatically client portfolio assets. A proprietary investment portfolio meeting the instruction’s conditions is a different object. Keep the management company’s balance sheet separate from portfolios included because of their qualifying investment-management relationship.
Execute the reconstruction register
| Field | Required input | Error prevented |
|---|---|---|
| Filing | Adviser identifier, amendment and valuation date | Unmatched firms or periods |
| Eligibility | Portfolio type and ordinary-account test where relevant | Every client asset included |
| Services | Contract, ongoing duties and actual scope | Occasional advice treated as management |
| Portion | Assets managed by this adviser | Other managers’ scope imported |
| Gross value | Compatible asset values before liability deduction | NAV substituted for RAUM |
| Commitments | Qualifying contractual uncalled amount | Capital calls double counted |
| Reconciliation | NAV, fee base and RAUM as separate measures | Scale mistaken for equity or revenue |
Instruction 5.b.(4), printed page 22 addresses valuation within 90 days before filing and the applicable current market or private-fund fair-value treatment. Record the valuation date separately from filing and retrieval dates; a currently retrieved filing does not make its valuation current today.
Public filings can provide the reported total and some explanatory information, but not every underlying management agreement or portfolio ledger. If those inputs are unavailable, describe a reconciliation limit instead of claiming to have independently verified the entire figure.
When RAUM conflicts with a business presentation’s AUM, compare definitions, valuation dates, client scope, leverage and commitments before calling one incorrect. Fee revenue divided by RAUM is not automatically the contractual fee rate: the earning base, timing and exclusions may differ.
Update when a filing is amended, managed scope changes, commitments are called or cancelled under supported terms, or valuation information changes. Preserve the old filing and distinguish definition changes from economic growth. The result should explain what enters the regulatory number and why, while leaving NAV and commercial AUM on their own bridges.
Reconcile reported changes without inventing flows
Two RAUM observations do not uniquely identify subscriptions or investment performance. In the borrowing example, a ten-unit increase occurs without a NAV increase. In the capital-call example, NAV increases while RAUM remains unchanged. A change table should therefore list valuation, commitments, financing and service-scope changes separately. When their contributions are not disclosed, keep an unexplained difference rather than assigning it all to new client money.
FAQ
Does RAUM of 100 mean investors own equity of 100?
No. The example has RAUM of 100 and NAV of 50 because the measures treat debt and commitments differently.
Does every client asset qualify because advice was provided once?
No. Portfolio eligibility and the required continuous and regular services must be assessed.