Managing high net worth requires significant time, energy, and experience with a variety of finances—which is why many high net worth individuals seek the services of a financial advisor. If you’re looking for net worth advice and shopping around for a financial advisor, read on for some insider knowledge that will set you up for success.
High Net Worth Individuals Definition
An individual with high net worth has liquid assets that exceed a certain threshold (usually $1,000,000). This includes any asset that can be easily converted into cash in a short period of time. The term “liquid assets” is important to this definition, as only these kinds of assets are used in the calculation of net worth. For example, if someone owns a $1 million dollar home but only has $500,000 in liquid assets, they are not considered a high net worth person.
What Is Considered Very High Net Worth?
Those with very high net worth hold liquid assets between $1 million and $5 million. In general, high net worth can be broken down into these three categories:
- High net worth individuals - liquid assets between $1 million and $5 million
- Very high net worth individuals - liquid assets between $5 million and $30 million
- Ultra high net worth individuals - liquid assets over $30 million
How Do High Net Worth People Manage Their Money?
Most high net worth individuals hire a financial advisor or wealth manager to oversee their finances. Wisely handling that much wealth takes a lot of time and energy that many of these individuals simply don’t have.
How these funds are managed will vary greatly depending on the needs of the individual. The best wealth advisors will be able to advise high net worth individuals in all areas of financial planning. If you’re shopping around for a financial advisor, consider the following areas of financial planning to prepare yourself for interviewing and selecting the perfect one.
Retirement planning can sound relatively straightforward when you first begin devising a plan. You evaluate pre-tax and after-tax investment accounts, consider your current financial situation and future financial situation, and then make an educated decision on which is best for you. However, depending on your unique circumstances, navigating all of these challenges simultaneously can be a burden.
If you own a business, that adds another wrench in retirement matters, and improper retirement planning could end up costing you way more in taxes than originally planned. Retirement planning is a delicate balance of business strategizing, predicting inflation rates, planning alternative income sources for retirement, predisposition to risk, anticipated withdrawal rate, and many other factors.
Your financial advisor should be able to team up with your estate planning attorney to prepare your estate planning documents. When high net worth individuals pass away with outdated or improper estate planning (or none at all), the management of their estate can become a huge mess rather quickly. More often than not, the resulting actions and consequences are usually not what the deceased person would have wanted.
Consider Philip Seymour Hoffman’s death and his $12 million estate planning oversight. He passed away in 2014, and his will directed that his $35 million estate was to go to his long-time girlfriend, Marianne O’Donnell, and that his girlfriend was to provide for his three children. Because he and Marianne were not married, his estate ended up owing approximately $12 million in estate taxes. Philip could have gone a different route with his estate planning that might have avoided or reduced this estate tax, leaving more money for Marianne and his children.
Whatever investment methods your financial advisor uses, they should be able to back up their advice with evidence of past success. They should also tailor investments to your specific needs, considering factors like your risk tolerance, tax situation, and personal values. And if they are advertising the creation of a “well-rounded portfolio,” they should be offering investment advice beyond the basic stocks and bonds.
For example, real estate investments can yield an excellent return rate. Many wealthy people have found success with this route and are investing decent portions of their money into real estate. In fact, in a recent survey, high net worth individuals revealed that they allocate 10.6% of their assets in real estate investments. The advantages of “locking up” these assets include higher expected returns and possible stable income streams, depending on the route and risks you are willing to take.
Tax planning isn’t just a seasonal issue around April each year. A good financial advisor will assist with tax planning all year round to mitigate risk and avoid surprises. This should include:
- Comprehensive bookkeeping that supports maximum deductions
- Quarterly tax payment planning
- Monthly revenue analysis and tax planning recommendations
- State and federal income tax return preparation
- Personal tangible property tax return preparation
- Filing of sales and payroll tax dollars and reports
Superior tax planning should make it easier than ever for you to pay what’s due—and hold onto what’s yours.
What’s the Best Solution for High Net Worth Wealth Management?
Consider hiring Delta Wealth Advisors for your financial planning needs. We combine the specialized services of our in-house financial planning professionals and CPAs, allowing us to address your situation from every possible angle. Not only do we want to help you grow your wealth, but we also focus on protecting that wealth for the future of your business and your family.Our high net worth clients face special challenges that not every financial advisor will know how to handle. Rest assured, we’ve seen it all, and we look forward to using our experiences to best serve you. Ready to talk about the future of your finances? Click the big green button on our website to schedule a call.