Financial Planning Concerns High-Net-Worth Individuals Face

Financial planning for high-net-worth individuals can be a bit more complicated than the rest. High-net-worth individuals have a net worth of $1 million or above. Ultra and very high-net-worth individuals may also have assets valued at more than $5 million and $30 million. Moreover, these high-net-worth values are not calculated on physical assets but on liquid ones, which may be relatively more volatile to manage. For instance, a house or car is not considered when ascertaining their net worth, but stock market investments, cash, and virtual assets like cryptocurrencies are.

Evidently, the financial concerns high-net-worth individuals face are more magnified than other investors. Managing vast sums of money, and investments like venture capital, non-fungible tokens (NFTs), and others, can be confusing. It also requires a good understanding of tax policies, laws, market sentiment, etc. The income sources for high-net-worth individuals are, more often than not, business, investment returns, and the like. Therefore, ensuring that these sources do not dry up and are able to generate adequate returns is a must. Additionally, high-net-worth individuals may also worry about continuing their lavish lifestyles throughout life, including retirement. If you want guidance on how to preserve your wealth to ensure you do not run out of money during the latter years of your life, consult with a professional financial advisor who can advise you on the same.

Ultra high-net-worth financial planning can require intricacies and attention to the minutest of details. All of this can trigger concerns and doubts. Some of these have been discussed below, along with things to do to avoid them.

1. Getting the right financial advisor:

Financial planning for high-net-worth individuals can include tax planning, managing philanthropic activities like charity, asset protection, estate and succession planning, and risk management, among several other things. This can require continued support and guidance from a professional perspective. It is evident that high-net-worth individuals need a good wealth manager. However, given the high values at stake, finding one and being able to trust them can be a bit more stressful. If the wealth manager does not follow an investment style or approach that matches your goals, you can find it hard to rely on them. Similarly, it is vital to pick an advisor who can understand your objectives and risk appetite and accordingly recommend investment options. Many a time, the wealth manager may have their vested interests at heart and could recommend a lot of products or opportunities because they benefit them more than you. However, while these concerns are all valid, there are turnarounds for them. For instance, you can hire a fiduciary. Fiduciary duty mandates the advisor to keep your interests ahead of theirs. Secondly, when hiring a financial advisor, look for their certifications to establish more faith. You can look for the following:

Chartered Financial Analyst (CFA))
Certified Trust and Financial Officer (CTFA)
Certified Private Wealth Advisor (CPWA)
Chartered Financial Consultant (ChFC)
Certified Investment Management Analyst (CIMA)
Chartered Wealth Manager (CWM)
Certified Financial Planner (CFP)

Further, it helps to check the number of clients the manager is attending to at a time. Not only will this give you an idea of their performance but also their availability. If the professional has too many clients, they might not have enough time to attend to your needs, especially if you want round-the-clock communication. But the sign that someone is in high demand can be reassuring, too. If you are someone who wants to sit with the advisor every few days or once a week, it can help to clear out a schedule with the advisor beforehand to avoid delays or postponements later. Having a transparent chain of communication is vital, so you may benefit from hiring someone who is easily accessible and welcomes your thoughts and queries. Another thing to check is the advisor’s business model. For instance, see if the professional has branched out to wealth management without expertise in it. Many banks and financial companies offer wealth management services. But since this is not their primary area of domain, you may not always find the right advice. Instead, hiring a wealth management firm can be more advantageous since they may be doing this for a living as their primary field of operation. There can always be exceptions to this, so you could get recommendations from friends, family, and peers to make a decision.

2. Mitigating risk:

High-net-worth individuals use high-risk investments like domestic and international stocks from varying market capitalizations and industries, venture capital, etc., to create wealth. Ultra high-net-worth financial planning is different from regular investments in 401ks, individual retirement accounts (IRAs), or mutual funds. As a result, the risk involved is relatively higher. The investment budgets of high-net-worth individuals are also a lot more, which increases the risk exposure. A wrong move can be detrimental to their financial health and fortune. Hence, risk reduction is one of the main concerns of these investors. Besides, these individuals may be famous and can be prone to litigation from a third party. The lingering fear from creditors is also high. So, having a clear strategy to avoid these hurdles is essential. While the risk involved is high, proper diversification can be helpful in lowering risk. A stock market is a volatile place that can be affected due to various macroeconomic factors. A high-net-worth individual may not be able to take out time from their schedule to create a diversified portfolio and rebalance it from time to time, but hiring a financial advisor can help. The advisor can help in devising a portfolio that aligns with your risk appetite and investment style. For instance, some investors prefer active investing over passive. Some may choose the contrarian investing style. All of these factors can be incorporated into the financial plan with due consultations and suggestions from the financial advisor. Financial advisors can also help in protecting your investments from inflation, recession, and depression while making timely shifts and corrections. Further, as you grow older, expand your business or grow in your profession, and have children and grandchildren, you may want different things in life at different stages. Ensuring these changes reflect in the portfolio is imperative to see aligned financial growth. Portfolio rebalancing, switching between asset classes, and setting up savings funds and investments for each goal is critical. These tasks can be undertaken by a wealth manager or financial advisor at the right time.

3. Tax planning:

Tax is one of the major financial concerns high-net-worth individuals face. Income tax, capital gains tax, property tax, estate tax, state tax, etc., all have the potential to eat into your fortune. However, there are some tax savings strategies that can help. Typically, the higher your income, the higher the tax. The same can be said for capital gains. The more profits you earn, the more heavily you are taxed. Estate taxes also render your hard-earned money and assets less valuable for your future generations. Proper financial planning for high-net-worth individuals can be one way to lower these taxes. Some popular tax-saving strategies that you can use include gifts, charity, tax-loss harvesting, etc. For instance, you can use the lifetime gift tax exemption and transfer some of your assets to your children to lower your tax liability. As of 2022, you can gift assets worth $11.7 million without triggering the tax. This is increased for married couples as the joint exemption is $23.4 million. In the case of capital gains, tax-loss harvesting can be effective in lowering the tax output by using losses incurred in the same financial year to reduce the tax on your gains earned in the same year. Cash donated to a public charity can be deducted from up to 60% of your adjusted gross income for the year. Life insurance is also helpful in lowering the tax and can be a fantastic estate planning tool. Insurance payouts given to the nominee in the case of an unfortunate event are exempt from any tax. So, the surviving family members enjoy complete financial security in the future.

4. Ultra high-net-worth retirement planning:

One of the biggest concerns for most investors, irrespective of their net worth, can be to live a similar lifestyle in retirement as before. High-net-worth clients are no different. Age, health concerns, etc., catch up eventually, and the ability to earn more money in retirement lowers. Hence, saving for retirement optimally is essential from the very start. Ultra high-net-worth financial planning in retirement can help you live a comfortable life for as long as you live. This can be warranted by following a steady withdrawal strategy so you do not run out of your funds in the early years of retirement. Additionally, capital preservation is equally important. Your risk will drop in retirement even if you have the fortune to rely on. So, making a timely shift to comparatively less volatile investments is imperative. Life events like losing a spouse, marriage, divorce, children, etc., also require a change in your primary financial plan. These disruptions can be overcome as long as you have a sufficient and stable nest egg to depend on.

To summarize

Financial planning for high-net-worth individuals can be relatively complex, but it is not all that hard. You may overcome these basic problems if you are focused and have the right help by your side. This is one of the reasons professional wealth management for high-net-worth individuals is considered so important.

A professional financial advisor can be an asset to you, and hiring one soon in life can be helpful to make sure you are on the right track. Use WiserAdvisor’s free advisor match service to find highly qualified and vetted wealth advisors who can guide you on the same. Answer a few questions about yourself and get matched with 1-3 wealth advisors that are suited to meet your financial requirements.