Beyond the Basics: Advanced Financial Planning for High-Net-Worth Individuals
High-net-worth individuals (HNWIs) face unique financial challenges in managing their wealth and making smart investment decisions. However, they also have a myriad of opportunities to sustain and grow their wealth effectively.
High-net-worth financial planning focuses on this demographic's specialized financial needs and goals. “High-net-worth” typically describes individuals with at least $1 million in liquid or investable assets and $5 million to invest. Ultra high-net-worth individuals have around $30 million in liquid assets.
Asset-Map is a valuable tool for financial advisors who assist high-net-worth clients in achieving their financial objectives. By providing easy-to-understand visualizations, Asset-Map prevents the decision-making paralysis that often comes with complex finances.
In this article, we will highlight the needs of high-net-worth individuals, common financial planning areas for this demographic, and how advisors can tailor their approach to this specific type of client.
The Unique Needs of High-Net-Worth Individuals
High-net-worth individuals have more wealth to manage than the everyday professional. These individuals face unique challenges due to their high net worth, which requires them to be strategic in their financial plans. Some of the needs people with high net worth may seek advisory services for include:
Wealth Preservation. Protecting one’s assets and wealth from market fluctuations and economic downturns can be challenging. Asset-Map helps ensure clients are well-prepared for scenarios that could affect their financial health. The Signals feature helps advisors anticipate clients’ potential financial weak spots and strengthen them before anything occurs.
Estate Planning. Estate planning for high-net-worth individuals is often more complicated than for other clients. Setting up trusts and wills, as well as managing probate, takes specific skills and strategy. Tax planning and deciding which family members or loved ones get what during distribution may be the two most difficult challenges for high-net-worth individuals.
Tax Optimization. When someone has a high income, they are strategic in their financial plans to minimize tax liability and maximize after-tax returns. Tax strategies and optimization may include contributing to tax-deferred accounts, tax-loss harvesting, investing in municipal bonds, and holding investments for extended periods to secure lower capital gains tax rates.
Legacy Planning. Passing wealth to future generations is a common priority for people with high net worth, which is why legacy planning is such an important piece of the puzzle. Legacy planning includes setting up trusts, utilizing gifting strategies, conducting succession planning for a family business, and incorporating charitable giving.
Risk Management. Managing risk is a considerable part of wealth management and financial planning for people with high net worth. Some common risk mitigation strategies include getting insurance, maintaining high levels of liquid assets, and diversifying their investment portfolios due to a concentration in singular investments such as family businesses and real estate.
Key Financial Planning Areas for High-Net-Worth Individuals
High-net-worth individuals have many areas in which they may work with a certified financial planner (CFP) or financial advisor to manage. Below are key financial planning areas that high-net-worth individuals typically need in their comprehensive financial plan.
Investment Strategies. With ample money to invest, these individuals may explore advanced investment strategies, including private equity, hedge funds, and alternative investments like real estate or cryptocurrency. A financial advisor can guide clients to make the best decisions for their portfolios and set them up for success through diversification and proper distribution.
Retirement Planning. Retirement planning for high-net-worth individuals involves income planning and intentionality when making tax-efficient withdrawals. A qualified charitable distribution can be used to avoid paying taxes on an IRA or 401(k)’s required minimum distribution. Creating an estate plan to minimize taxes is also part of retirement planning for high-net-worth individuals.
Philanthropy. Giving back to the community or specific charitable causes is often a priority for HNWIs. Financial planners can assist in how to choose nonprofit organizations to donate to and create a plan for a client’s annual philanthropic efforts. They can also help clients generate maximum societal change through philanthropy.
Business Succession Planning. High-net-worth individuals often own businesses, which is why business succession planning is a key area of financial planning. The process of business succession planning for high-net-worth individuals is complex because it requires focusing not only on tax considerations but also on balancing family dynamics and business continuity. Financial advisors can assist in minimizing tax liabilities and creating liquidity through employee stock ownership plans and other strategies.
Tailoring Your Approach to High-Net-Worth Clients
So, as a financial advisor focused on those with high net worth, how do you tailor your financial advice to clients in this specific demographic? We'll outline several steps to working with high-net-worth clients in more detail below.
Building Trust. With high-net-worth clients, building trust and rapport is of paramount importance. This type of client tends to be more protective after building their wealth. To build trust, show empathy during conversations, practice active listening, and allow collaboration to occur. Demonstrate your expertise and maintain transparency in your recommendations to ensure clients feel included and trusted.
Understanding Their Goals. High-net-worth clients want to feel heard and understood. As their financial advisor, your job is to understand their unique goals and aspirations. You should also have a firm grasp of the people most important to them, how their financial decisions affect them, and their financial situation.
Providing Personalized Service. Providing high-touch, personalized service to high-net-worth clients is essential to earning their satisfaction. Prioritize long-term goals to show clients you anticipate a long-term working relationship. By focusing on legacy planning and their future aspirations, you can show clients your commitment to their financial success.
Leveraging Asset-Map for High-Net-Worth Financial Planning
The more complex one’s financial life, the harder it is to see areas needing attention and optimization. For high-net-worth individuals, Asset-Map is an invaluable tool for simplifying their financial data into advanced visualizations.
Other benefits of using Asset-Map for high-net-worth financial planning include:
Centralized Account. By enabling a singular view of any household, Asset-Map helps financial advisors collaborate with multiple parties in a family and educate them on the current structure. Asset-Map keeps household data all in one place for easy access for both the client and advisor. It also features integrations with other financial applications such as Orion, Nitrogen, Black Diamond, Holistiplan, Redtail Wealthbox, and more, to easily import data from other sources into one shared view.
Risk Management Tools. Asset-Map’s Signals feature can be used to assess and manage risk associated with typical insurable events like loss of life, disability, long-term care, and property/casualty risks. Signals works by indicating a household’s ability to weather up to six common financial events based solely on their Asset-Map Report. Signals uses financial industry ratios to determine the current state of a client’s financial instruments and their availability to fund reasonable losses from the six events (Liquidity, Long Term Disability, Loss of Life, Long Term Care, Longevity, and Legal Liability).
Client Communication. Another benefit of Asset-Map is its enhanced communication and collaboration with high-net-worth clients. Asset-Map helps advisors start and continue important financial conversations with clients and easily displays a picture of their financial health. The Asset-Map Report offers a visual experience that displays all of a household’s members, entities, financial assets, liabilities, cash flows, and insurance policies. This aids financial planners in having deeper conversations with clients.
Compliance and Regulatory Reporting: Asset-Map can also help advisors and CFPs ensure compliance with regulatory requirements such as the SEC’s Regulation Best Interest. It provides a backlog of activity and enables you to generate reports like fact-finding KYC (know your client) documentation.
Unlock the Potential of Asset-Map for High-Net-Worth Clients
In the financial advisory space, working with high-net-worth individuals can be an opportunity to demonstrate your expertise in key areas like investment management, retirement planning, philanthropy, and business succession planning.
Asset-Map is built to be a financial advisor’s best friend. Using Asset-Map’s innovative features and integrations, you can assist high-net-worth clients in meeting their financial goals. With complex finances, keeping everything organized for seamless communication can be a challenge. Asset-Map solves this with user-friendly visualizations.
Schedule a free demo to learn more today!