Sean Canonica
Apr 11, 2024
High net worth means having to tackle specialized obstacles, so it’s wise to work with a financial advisor to ensure your needs are met. As DeLuca describes, an “HNW client requires increased monitoring of [their] finances.” Without help, this can feel like a full-time job or leave your net worth going backward.
The article explores the concept of being rich, particularly focusing on high-net-worth individuals (HNWIs) and their financial characteristics. Key takeaways include:
Definition: HNWIs are individuals with $1 million or more in investable assets, excluding non-liquid assets like real estate and collectibles.
Benefits: HNWIs receive preferential banking and financial services, access to private investment opportunities, and reduced fees.
Challenges: Wealth brings complex challenges such as higher tax brackets, the need to preserve wealth, and managing assets efficiently to avoid overspending.
Ultra-High-Net-Worth Individuals (UHNWIs): These are individuals with $30 million or more in investable assets, often requiring intensive financial services.
Net Worth Calculation: To calculate net worth, add up liquid assets and subtract liabilities.
Wealth Management: Financial advisors and wealth managers offer tailored solutions for HNWIs, including financial planning, estate planning, investment management, tax planning, and risk management.
According to Anthony DeLuca, CFP, CDFA, and Senior Financial Advisor at Delta Advisory Group, an HNWI is "anyone who amasses a million dollars in liquid assets." These assets include cash, stocks, bonds, mutual funds, ETFs, treasury bills, and certificates of deposits (CDs). Non-liquid assets like real estate and collectibles are not typically counted towards this threshold but do contribute to overall net worth.
Achieving HNWI status can be through consistent saving and investing, business ownership, or significant windfalls like inheritance or lottery winnings. This status is significant as it impacts both the client and financial advisor, bringing unique challenges and benefits. Investment advisor firms must report the number of HNWI clients they serve to the SEC, while clients gain access to more advantageous banking services and private investment opportunities.
Ultra-high-net-worth individuals (UHNWIs) have $30 million or more in investable assets, requiring more intensive financial services, often managed by family offices.
To calculate net worth, add up liquid assets and subtract liabilities. If the result is $1 million or more, one is considered an HNWI. Benefits of this status include preferential banking treatment and access to private investments. DeLuca notes that HNWIs can "use banking and financial services at reduced fees" and gain access to private placements.
However, wealth also brings challenges, such as higher taxes and the need to balance asset distribution and preservation. DeLuca mentions the "delicate balance between distributing your assets efficiently to enjoy retirement with the pitfalls of overspending" and suggests using deferred annuities to manage taxes and protect against inflation.
Wealthy individuals may face estate taxes if their estate exceeds $13.61 million as of 2024. DeLuca recommends planning ahead to distribute assets before you pass
.
Given these complexities, working with a financial advisor is crucial. DeLuca emphasizes that an "HNW client requires increased monitoring of their finances." Wealth management firms offer comprehensive services, including financial planning, estate planning, investment management, tax planning, and risk management. Qualifications to look for in advisors include Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), and Chartered Alternative Investment Analyst (CAIA).
Finally, it's important to ensure advisors follow fiduciary duty, and tools like FINRA's BrokerCheck and the SEC's Investment Adviser Public Disclosure can help verify an advisor's credentials and reputation.
Source: Comparison Adviser - Sean Canonica