It’s a simple statement, but it’s true: financial planning is an important consideration for just about everyone.
However, high net worth individuals and couples may find especially valuable benefits through financial planning. A high net worth often means there are unique needs, risks, and opportunities. These factors aren’t always in play for those with average net worth.
Keep reading to learn more about financial planning for high net worth individuals.
Key Takeaways
- High net worth financial planning requires customized strategies to manage unique financial needs, including tax optimization, asset protection, and estate planning.
- A holistic approach is crucial, addressing all aspects of financial life, from investments and retirement planning to philanthropy and legacy goals.
- Working with experienced fiduciary advisors ensures that high net worth individuals receive unbiased, expert guidance tailored to preserving and growing their wealth effectively.
What Is High Net Worth Financial Planning?
High net worth financial planning is a specialized area of planning. Because high net worth individuals typically have more complicated financial situations. Their needs are unique, as are the risks they face.
Successful planning always focuses on the key issues, concerns, or problems facing the client. Therefore, any and all financial planning must focus on their unique situation.
Financial planning, in general, is the process of identifying where you are and where you want to go in your financial life. Then, a financial advisor can develop the strategies and tactics to get you there.
This process takes into consideration all your financial components. These include liquid assets, investments, real estate, and expenses. It also considers current income and future income from pensions and social security. Current and future tax liability and any threats to your net worth and income are also crucial aspects to look at.
We often refer to financial planners specializing in wealth management as wealth management advisors. These advisors engage in financial planning for high net worth individuals. It is critical that high net worth individuals work with someone who specializes in wealth management because the potential risks and pitfalls are so much greater at this level of planning.
Is High Net Worth Financial Planning Similar to Standard Financial Planning?
Unfortunately, there’s no easy answer here. The financial planning process, as described above, will take into account all of the various financial components of a person’s finances and create a road map for the future.
In that sense, yes, high net worth financial planning will look similar to standard planning.
But as each area of someone’s financial situation is reviewed, the complexities start to grow quickly. Standard financial planning will typically focus on helping someone attain financial stability.
High net worth individuals have, by definition, attained financial stability. The primary goal of high net worth financial planning then becomes one of preserving their net worth. It also includes growing it, protecting it, and then passing it along to heirs and favorite causes.
The 8 Keys to Successful High Net Worth Financial Planning
As we’ve discussed above, high net worth financial planning is unique because of the different financial situations, risks, and complexities that affluent individuals face. Even though high net worth individuals and families have achieved financial security, they sill face increased exposure to key risks.
Developing an individualized and comprehensive wealth management strategy is critical to achieving your financial goals and continued financial success. As such, you need to incorporate these key components as part of your high net worth financial plan:
Income Continuation
When you retire, you still will have a significant living standard to maintain. As part of the overall financial planning process, you need to ensure that your income can continue without jeopardizing the assets generating those earnings.
Investment Management
As you accumulate investment assets, their composition becomes very important. You need to structure your investments so that they align with your risk tolerance, are properly diversified, and generate needed income. Your assets should keep up with inflation through all economic cycles, including recessions and major market downturns.
Risk Mitigation
It’s one thing to identify the risks your net worth faces. It’s an entirely different thing to protect your net worth from those risks.
Minimizing your overall exposure to risk plays a crucial role in high net worth financial planning. Risk management is designed to identify and reduce the severity of risks you face and protect you against those that cannot be avoided. Inflation, market downturns, political changes, and taxes (just to name a few) are all potential risks you have to plan for.
In your investment portfolio, diversification plays a vital role in mitigating risk. Nobody has a crystal ball, and failing to properly diversify your portfolio is a recipe for disaster.
Tax Minimization
No matter what you do to grow your net worth and protect it, the IRS may prove to be your biggest adversary. The highest tax brackets in our country have ranged from 50% to 94%. On top of that, estate tax rates have been 50% or higher.
High net worth individuals need to focus on the tax planning side of their overall financial plan. There are some tax strategies for high income earners that are designed to reduce your tax liability and other tax implications that may arise.
Estate Planning
Leaving the right legacy in the right way to the right beneficiaries and causes is important. High net worth individuals need to focus on using estate planning strategies that create your personal legacy for the future.
Your legacy is arguable the most important thing you leave behind. The best of us want it to mean something. We don’t want the inheritance the kids or grandkids receive to be squandered. We also don’t want to ruin the values we work hard as parents to instill in our kids.
As we’ve often said to our high net worth clients, if you leave $2 million outright to an 18-year-old, we can almost guarantee that he or she won’t have anything left by the time they’re 30. Consequently, they will then feel guilty for the rest of their lives because they squandered it. Your estate plan must consider how assets are inherited and protected. It’s not just how much is inherited, but the manner in which it’s done. Utilizing an estate planning checklist can point you in the right direction.
Wealth Planning
Wealth planning is a specialized area of high net worth financial planning that holistically focuses on retirement planning, investment management, risk management, and estate planning.
Additionally, wealth planning is always multi-generational. Going beyond financial stability means there will be considerable assets for other generations to inherit and manage. You need to start this process now in order to prepare the next generation for tomorrow.
Distribution Planning
Distribution planning is a critical component of planning for individuals with complex tax situations. A skilled financial advisor can help high net worth individuals navigate the intricacies of distribution planning, ensuring that their wealth is distributed according to their wishes in the most tax-efficient manner possible.
Effective distribution planning involves a deep understanding of tax laws and regulations, as well as a thorough analysis of the client’s financial situation and goals. A financial advisor may employ various strategies to minimize tax liabilities, such as making the most of tax-advantaged investments, timing income and deductions strategically, and utilizing trusts and other estate planning tools.
By working with a financial advisor, high net worth individuals can ensure that their wealth is distributed in a way that aligns with their values and goals, while also minimizing tax liabilities.
Business Exit Planning
Business exit planning is a critical consideration for high net worth individuals who own or have owned one or more businesses. A successful business exit requires careful planning and execution, taking into account the impact on the family, employees, and customers.
A financial advisor with experience in business exit planning can help high net worth clients navigate the complexities of this process. This may involve developing a comprehensive plan that addresses business planning, exit planning, financial planning, estate planning, and advisory team planning.
By working with a financial advisor, high net worth business owners can ensure a smooth transition of their company, while also achieving their personal and financial goals.
Collaboration with Other Professionals
High net worth financial planning often requires collaboration with other professionals, such as attorneys, accountants, and insurance specialists.
Collaboration with other professionals may involve working together to develop a comprehensive financial plan, or providing referrals to trusted professionals who can provide specialized services. By working together, a financial advisor and other professionals can provide high net worth clients with a more complete and integrated planning experience.
Success Requires The Right Help
High net worth financial planning is a complicated process that involves a high degree of expertise.
Don’t let a sales pitch or a do-it-yourself approach cripple your financial future. First Financial Consulting is dedicated to providing 100% objective advice to high net worth individuals. We have been doing this successfully for more than 45 years and we understand your unique situation and the complexities you face.
We would love to discuss how we can help you, your family members, and future generations. If you’d like to start exploring different financial planning strategies, please use the button below to schedule a complimentary introductory appointment.
Greg Welborn is a Principal at First Financial Consulting. He works with high-net-worth individuals and privately-owned businesses on financial planning issues including investment, retirement, and tax planning, among others.
Greg Welborn is a Principal at First Financial Consulting. He works with high-net-worth individuals and privately-owned businesses on financial planning issues including investment, retirement, and tax planning, among others.
