Expert Wealth Management Solutions for High-Net-Worth Individuals

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High net worth individuals are generally considered to be those with at least $1 million in liquid assets. Liquid assets are those readily transferable to cash, such as stocks or bank accounts, rather than illiquid assets like vehicles or real estate.

Those who are fortunate enough to have high net worth might require specialized wealth management to handle matters, from estate planning and charitable giving, to business succession planning, risk management and more.

What Is High-Net-Worth Wealth Management?

High net worth wealth management involves many disparate elements. Here are the most common:

• Investments: Investments are the engine of any financial plan, as they build the wealth that defines what a high net worth individual is.
• Tax planning: Tax planning is the art of keeping what you earn, rather than forking it over to the government.
• Estate planning: Estate planning refers to what happens to your assets after your death or incapacitation. It aims to minimize taxation and ensure that your money goes to the people or institutions that you choose.
• Risk management: Risk management refers to protecting the wealth you have and growing it in a way that doesn’t involve taking risks that aren’t worthwhiile.

Investment Strategies

All investors benefit from diversification, but high net worth individuals have the advantage of access to more sophisticated investment strategies.

In addition to traditional investments like stocks and bonds, high net worth individuals typically diversify their portfolios with real estate, private equity or hedge funds, for example. They might also turn to alternative investments like fine art, collectibles, precious metals, as examples.

Specialized investments not only help diversify their investing portfolio, they can also help manage risk and boost returns. Most high net worth individuals choose to work with experts due to how complex they are.

Tax Planning

Taxes aren’t always the easiest to understand, which is why it usually pays for HNWIs to work with experts in the field. The complex set of tax rules actually offers many ways to reduce or avoid taxes, especially for people with high incomes or net worth. Here are some common strategies. 

Choose Tax-Advantaged Investments

One of the best ways to avoid tax is to buy investments that aren’t taxable. Municipal bonds, for example, are federally tax-free and are also state tax-free in their state of issue. Treasury securities are federally taxable but are always free from state tax. 

Contribute To Tax-Advantaged Accounts

Although they function in a slightly different manner, both IRAs and 401(k) plans — in addition to 403(b) plans, 457 plans and some others — allow for tax-deductible contributions. Meanwhile, money in the account grows tax-deferred until it’s withdrawn. In the case of Roth IRAs, the savings are even more impressive, as qualifying distributions are also tax-free. 

Make Charitable Contributions

Making charitable contributions is not only good for the greater good, there are some immense benefits too for high net worth individuals. Contributions are typically tax-deductible, and donating appreciated securities can also help you avoid paying capital gains tax. 

Harvest Tax Losses

One of the most generous types of tax breaks, particularly for wealthy investors, is the ability to offset capital gains with capital losses. If you’ve had a huge year in the stock market and have taken big profits, for example, you can sell any losing positions and offset those gains with your losses, thereby avoiding paying taxes on them. 

Estate Planning

Estate planning is particularly important for HNWIs. The higher your net worth grows, the higher your tax bracket–and the amount you’re obligated to pay–becomes. The proper use of trusts, wills and other estate planning tools can help HNWIs transfer wealth efficiently. Here’s how:

Trusts

A trust is a legal document that you can use to hold and manage assets, set up rules for how the money is used and for which beneficiaries will receive it after you pass, all while avoiding probate.

Wills

A will functions much like a trust, but it still must go through probate, which is a public process. Wills also take effect after you die, whereas a trust can be in place while you’re still living. Even if you have a trust, you should have a will in place to cover any gaps in the trust and to have a functioning estate planning document in case your trust is not yet funded. 

Other Forms of Estate Planning

In addition to trusts and wills, HNWIs usually have other estate planning instruments in effect. A power of attorney, for example, directs someone to handle your financial affairs if you become incapacitated. An advance health care directive allows someone of your choosing to make medical decisions on your behalf if you are unable.

Wealth Preservation

Wealth preservation and risk management go hand in hand. While HNWIs generally take some level of risk to generate their significant levels of wealth, they are also generally risk-averse. After all, no one with a large amount of money wants to see it go away, especially if they worked hard to acquire it. This is where wealth preservation and risk management come into play. Here are some ways that HNWIs protect their wealth:

Insurance

Insurance is one of the best ways to protect assets from loss. Fire, home and auto insurance, for example, protect personal property, while life insurance protects a family from the loss of the primary breadwinner.

HNWIs also typically have umbrella policies to provide additional coverage against personal lawsuits or to cover gaps in other insurance. They can also use insurance as an investment, to build cash value, or to transfer wealth and reduce estate tax via an irrevocable life insurance trust. As these strategies are complicated, they should be used in conjunction with a life-licensed financial expert. 

Smart Asset Allocation

HNWIs typically use smart asset allocation to diversify their portfolios among non-correlated assets. In addition to standard investment options like stocks, bonds and ETFs, HNWIs often incorporate precious metals, hedging strategies, alternative investments, real estate and commodities into their portfolios. 

Working With a Wealth Manager

High net worth individuals almost by definition have more complicated financial lives. As most high net worth individuals also run their own businesses, manage charitable institutions, have extensive investment portfolios or all of the above, it only makes sense that they often prefer working with a wealth manager to coordinate all of their financial planning.

Not only do many of these HNWIs have little time to manage their complicated financial lives, they often don’t have the specialized expertise that professional wealth managers do as well.

While HNWIs are often knowledgeable and may even be experts at, say, managing real estate, very few are also experts in tax and estate planning. Having a way to get ahead of any financial pitfalls with a proper risk management strategy is almost necessary–and that’s why many choose to hire financial planners.

Final Take

Theoretically, all Americans theoretically have the same access to wealth-planning strategies. However, the truth is that high net worth individuals both need more advanced solutions and can take advantage of more options than the average American.

Wealthy investors, for example, more often need assistance with tax and estate planning than the average American, and their wealth often creates financial situations that just don’t apply to the vast majority of investors. Being wealthy does often mean your finances are more complicated. It’s usually best for these types of investors to consult with financial professionals. 

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