An individual whose liquid assets value is US$1 million or more is tagged as a High Net Worth Individual. There is no definition of HNWI which is released by a regulatory body or any big institution. Generally, an HNWI is understood in terms of the liquid assets owned by them such as cash held in the brokerage account or banks. Assets such as durable goods, collectibles or primary residence is not included in the calculation.
A High Net Worth Individual requires wealth managers and financial advisors because of their substantial assets. The financial services comprise of tax advice, managing the investment, managing the estates and trust along with the services related to the private equity and hedge funds access.
An HNWI becomes more appealing to the wealth manager when they own more amount of the liquid assets. Generally, the fee of a wealth manager is equal to the percentage of the assets managed by them. Moreover, HNWIs are provided with specialized client and personal services by the investment management and banking institutions if the HNWI can reach the minimum amount specified by them.Summary
HNWI has been categorized into three classifications by the financial professionals that are,
There are various benefits that are given to the HNWIs. Since HNWI need to maintain their present value and do not want to fall into any legal issues, these services are extended.
An HNWI is treated like royalty by financial advisors. HNWI requires more attention as a large amount of wealth needs to be managed properly and complicated situations need to be avoided. Personalized services are extended to HNWI such as tax planning, estate planning, investment management related advice and so on.
A lot of valuable benefits are extended to the HNWI by the money managers. A dedicated wealth advisor is allocated to the HNWI by the money manager along with the perks of reduced fee, access to large events and conferences, tickets to the theatrical, sporting, and entertainment events.
The account of the HNWI gets more attention in comparison to the accounts owned by other investors. They get access to those services, funds, and financial products, which cannot be accessed by any other individual. HNWI are provided with separate investment accounts rather than mutual funds.
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Financial discipline is the core of becoming an HNWI. An individual can gain the status of the high net worth individual by continuously investing (generating returns by taking risks) and maintaining their household debts. Generally, those individuals gain this status who have sold their current real estate or households and presently have large liquid assets in hand. Therefore, minimizing household debt and continuous investment can be a good strategy.
Even if an individual has limited resources and desires to become an HNWI, then he/ she can follow the following strategies –
Start investing at an early stage – Sooner an individual starts investing, the longer will be the duration for the investment and higher returns will be generated. This phenomenon takes place due to compounded interest and the fund’s value is grown. The historical data has presented evidence that the longer the duration of the investment, the higher will be the percentage of returns. The interest earned in year one will be reinvested and next year, the returns will be calculated on the principal amount plus the return earned in the first year.
Disciplined strategy – The investment strategy should be systematic, and the strategy should be followed with full discipline. For example, an investor aims at investing $1000 every month, then it should be followed with full discipline to achieve greater returns.
Liquid assets should be focused upon for becoming a high net worth individual, that is, cash in hand and cash equivalents. Therefore, an individual who desires to become an HNWI must count on the following assets –
Those assets are not considered which cannot be liquidated such as the land and real estate.
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In private wealth management, High net worth individual term is used extensively. Private wealth management stands for the management of the private assets owned by the entities, HNWIs, accredited investors and so on. These entities invest funds in the financial market with the aim to generate income while taking risks at the same time.
Financial advisors and investment banks work in close association with their clients to understand their investment objectives, goals, and strategies.
The aim of private wealth management services in regard to the HNWI is to provide them with the services which will help them in managing their current assets and increase the value of those assets in the long run. The services which are included in the private wealth management are –