High Net Worth Financial Planning
Any financial advisor or wealth manager will present you with high-net-worth financial planning strategies based on the information you provide.
However, to digress for a moment—for those of you with $5 million to $500 million in investable liquid assets, you can acquire a much broader and deeper level of financial knowledge by requesting a free copy of the 7 Secrets to wealth management, 70+ page book, here.
On the surface, most financial planners offer services tailored to their clients’ needs. But the reality is entirely different. Many financial advisors—especially those at big investment firms with branches dotting the country like fast-food franchises—will offer their clients the same high-net-worth financial planning strategies while saying that the plans they offer are customized.
We Are Different Because We Are Laser Focused On Helping You Achieve Financial Serenity Through Our Proven Comprehensive Goals-Based Planning & Investing Strategies.
Table of Contents
8 High Net Worth Financial Planning Strategies Components
- Investment Strategies
- Estate Planning
- Retirement Planning
- Tax Planning
- Asset Allocation
- Rebalancing Your Portfolio
- Paying You A Predictable Monthly Income
- Updating Your Wealth Management
If you have around $1 million in investable assets, you are a high-net-worth individual. And if you are someone with around $30 million in investable assets, you are included among ultra-high-net-worth individuals.
Individuals with a high or ultra-high net worth tend to ignore the importance of wealth management. They think that their wealth will last forever. This kind of self-confidence is good but unsafe at the same time. Many things can deplete wealth. Therefore, if you are a high- or ultra-high-net-worth individual, you need wealth management services and high-net-worth financial planning.
With the right high-net-worth financial planning, you can safeguard your assets until you retire or until one of your family members retires.
Wealth management will help you achieve your personal financial goals, and to partake in wealth management services, you will be asked to provide information about your finances. The information must be given honestly and accurately—the assets you have and the amount of debt, your marital status, children, insurance, income, expenses, risk profile, and goals.
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There are 8 critical components of high- and ultra-high-net-worth financial planning.
1. Investment Strategies
Developing high-net-worth financial planning and investment strategies cannot be arbitrary. You need to consider your financial situation. As an ultra-high-net-worth individual, you need an investment portfolio and an investment account to keep track of your investment. Don't forget to consider your investment risk tolerance.
Suppose you want to invest in a startup company, or any company; you need to open a brokerage account. A brokerage account is an agreement where an investor invests money with a licensed brokerage company, which then executes trades on the investor's behalf. While the brokerage executes the transactions, the funds belong to the investor, who must normally report any capital gains earned from the account as taxable revenue.
2. Estate Planning
Estate planning, as part of high-net-worth financial planning, entails deciding how an individual's assets will be stored, handled, and allocated after death or in case of incapacity. It also considers the management of a person's assets and financial commitments if they become disabled. Various high-net-worth financial planning tactics, such as establishing trusts and making charitable contributions, can reduce estate taxes.
If you have real estate, such as a building, you can rent out your property and generate income. Many lending and borrowing transactions are subject to interest. Individuals borrow money to buy homes, finance ventures, start or expand companies, or pay for college tuition. Loans are used by businesses to finance major projects and grow their business by buying fixed and long-term assets such as property, buildings, and machinery. These activities are part of high-net-worth financial planning.
3. Retirement Planning
Start saving and open retirement accounts as soon as you can. Retirement planning is important to manage your wealth until retirement and beyond. Retirement planning, in the context of high-net-worth financial planning, is a method of assessing retirement income targets and the actions and decisions required to meet those goals. Retirement preparation entails determining sources of income, estimating costs, putting an investment plan in place, and managing assets and risk. This is part of high-net-worth financial planning.
4. Tax Planning
Tax planning is an effort to reduce or minimize your tax burden so that you can keep more of your wealth. Tax management takes advantage of asset management strategies that are legal but reduce the amount of tax paid, such as loopholes.
There are six types of high-net-worth financial planning tax strategies:
• Participate in tax-advantaged accounts. Use tax-advantaged savings plans if you can help offset current and/or future taxes.
• Using a variety of investment accounts allows you to customize sources of income in retirement to help reduce taxes.
• Pick tax-efficient investments. Certain investments can have tax benefits.
• Adjust investments to the appropriate asset classes to take advantage of all future tax advantages while not raising your tax liability.
• Keep investments for a longer period of time to prevent unneeded capital gains. It is rarely worth hanging on to a stock you are willing to sell to escape taxes.
• Losses can be used to cover gains. You can substitute the return on your investment every year using investment loss—a practice known as “tax-loss harvesting”—to minimize your income tax liability.
It is also wise to consider your tax bracket when working on high-net-worth financial planning. A “tax bracket” is a range of earnings subject to a specific income tax rate. Tax brackets produce a progressive tax structure in which taxes rises as a person's income rises. Low-income taxpayers are taxed at comparatively low rates, whereas higher-income taxpayers are taxed at higher rates. The structure of this system affects high-net-worth financial planning. There are many kinds of taxes, such as inheritance taxes, estate taxes, or capital gains taxes, which can be a drain on your wealth.
5. Asset Allocation
According to many financial advisors, asset allocation is the most critical component of high-net-worth financial planning. Your allocation is based partly on your risk tolerance, and your risk tolerance is also influenced by your goals, the results of your stress tests, and the historical data. You must be realistic about your ability and willingness to tolerate major fluctuations in the value of your investments.
For example, we had a client whose previous wealth manager believed they could outperform the market. That manager opened eight accounts with various money managers, all of them positioned for massive growth, allocating 100% of the client’s assets to equities. No bonds. Only one of eight beat the market. And this is not unusual.
After running the client’s lifestyle goals and plans through our process, we found that they only needed 30% of their assets in equities. Far from 100%! With a conservative asset allocation, they would have lower taxes, with all investments in one place, peace of mind, and the assurance they would achieve what mattered most to them. So, asset allocation is critical to high-net-worth financial planning.
An optimistic high-net-worth investor, or someone that has a higher risk tolerance, is prepared to gamble more dollars in return for the likelihood of higher returns than a cautious investor, who has a smaller risk tolerance. As a high-net-worth investor, you might also want to look at historical disastrous returns for various liquid assets to determine how much money you are willing to lose if your investments have a rough year or series of terrible seasons.
6. Rebalancing Your Portfolio
To stay on track with the market, consider rebalancing your portfolio as an element of your high-net-worth financial planning.
Not all your assets will perform as expected. Some will do better, and some less well. But the allocation is what keeps the plan safely intact in 75–90% of your stress test scenarios. So, a critical component of your financial plan is rebalancing your assets regularly to preserve that financially secure asset allocation.
Rebalancing means purchasing and selling parts of your portfolio to restore the weight of every asset class to its original level.
7. Paying You A Predictable Monthly Income
The only way to have true peace of mind, even prior to retirement, is with an assured monthly income. Thus, your financial plan must include a monthly amount you can count on, just like a paycheck. With the right wealth manager and the right high-net-worth financial planning, you can predict your monthly income.
As a high-net-worth individual, you need a predictable monthly income to sustain your lifestyle and goals. It must also be an amount that keeps you within the 75–90% Comfort Zone we keep referring to.
8. Updating Your Wealth Management
Your goals, plans, finances, and priorities will change. It's inevitable. No plan stays intact and relevant for decades. Thus, if your financial plan isn't updated regularly, its relevance begins to diverge from your life until, eventually, it disconnects altogether.
Assume that your high-net-worth financial planning included allocating a substantial portion of your fortune to send your two grandchildren to the most prestigious university. But then, one grandkid lands a full-ride scholarship, and the other decides on a different life path and doesn't need the money. Now you've got hundreds of thousands of dollars you weren't anticipating having. And suppose on top of that, you get a divorce.
Just these two events will change your entire financial plan. Those extreme (though widespread) examples highlight the many more small events that slowly erode every financial plan over time.
You must update your plan, your goals, your asset allocation, your monthly income, and your investments—every quarter.
At Pillar Wealth Management, this includes re-running the 1,000 stress tests to ensure your financial plan remains on track—according to your updated lifestyle goals and situation: our wealth manager not only provides advice and information but also manages your wealth according to your needs.
These eight components of a financial plan function as a single unit, not in isolation. Hopefully, you're starting to perceive the depth behind this approach.
Non-Critical Components of a Financial Plan
What you don't need in your plan are:
• Projections or goals for a specific rate of return
• Pre-packaged products (especially ones with high fees, which most of them have)
• Non-data-backed goals like trying to outperform the market
Your plan is based on your lifestyle goals and how your money can help you achieve them. Using the stress-tested historically-backed approach, you have that security baked into the plan regardless of how your specific performance looks.
Your performance matters—it's how we achieve the plan. But the performance itself is not the plan.
If you want a financial plan created for you based on these eight foundational components, personalized for your specific situation, start a conversation with Pillar today.
If you want a cookie-cutter plan that's the same for someone with $50,000 in assets as it is for someone with $50 million, then visit your local franchise. And grab a burger with fries while you wait. Start a Conversation.
High Net Worth Financial Planning—5 Advantages
1. Reduce uncertainly and stress
Your future can be uncertain because you do not have a financial plan in place. You can gain confidence in your financial future if you have a framework for how you want your financial situation to evolve over time. With a financial plan developed with the help of a professional planner, you can feel more secure about your long-term future, which reduces stress and worry.
2. Have an impact on the taxes you pay
As a high-net-worth individual, you may be paying a lot in taxes. With the help of a financial planner or an investment advisor, you can develop a strategy for minimizing your tax burden. That strategy will include managing your investments to reduce capital gains tax, for example, or you can plan how to defer paying taxes through investing in a pension plan.
3. Create a strong plan for giving
When you have accumulated a significant amount of wealth, it is understandable that you would want to “give back” to society through charitable giving. With the help of a financial advisor, you can develop a giving strategy to support the causes that matter to you. You can create a trust or foundation. Your giving strategy can also contribute to lowering your tax payments.
4. Have a plan for business succession
When you think about your retirement, if you own a business, you are probably wondering what to do with it when you decide to stop working. A retirement plan should include a strategy for business succession. Who will take charge of the business? As there are various ways to plan a business succession, having the help of an advisor is a great advantage.
5. Define how your estate will be passed on
When you have accumulated enough wealth that you wonder how it will be distributed when you are no longer here, then it's time to create an estate plan. You want to ensure that your assets are distributed in a way that meets your wishes. A financial advisor has the expertise and knowledge to help you make the right decisions so that you can rest assured your family and others who are important to you are well-remembered in your estate plan.
4 Tips for High-Net-Worth Financial Planning
1. Develop a financial plan
High-net-worth individuals spend many years building wealth and accumulating assets. At times, it can be difficult to make the right decisions regarding asset and investment management, particularly when there are risks involved and when there is economic uncertainty and volatility in the markets. That's when you need a financial plan. In particular, a financial plan will clearly define your investment strategy to minimize your risks and taxes.
2. Plan for your retirement
As you accumulate wealth, it's easy to allow yourself to indulge in spending some of that wealth to satisfy your interests and desires. But as you consider retirement, it becomes imperative to ensure your financial needs will continue to be met when you no longer have a steady income from employment. You need a retirement plan that shows you whether you will be able to continue living the same lifestyle. A good financial advisor can help you develop that plan.
3. Minimize taxes and risk
With a certain level of wealth comes the responsibility for managing the assets you have accumulated. You also want to grow your wealth, and with the help of a financial advisor, you can develop an investment strategy that will minimize your tax payments. But you also want help with minimizing the risks inherent in any investment.
4. Plan for the long-term
As a high-net-worth individual, you want to ensure that your wealth will be available for your children and future generations to enjoy. For example, you may want to establish a trust. You should have an ongoing conversation with your children about being financially responsible so they have the skills required to manage wealth, including taking over a business.
3 Tips for Ultra-High-Net-Worth Financial Planning
1. Manage surplus assets
You can simplify the management of your assets if you consolidate them into a small number of accounts. You can invest assets in charitable funds or foundations. You can make gifts of the assets that you don't need to hold indefinitely. You can spend more because you can afford it.
2. Split family income to reduce taxes
Ultra-high-net-worth individuals who have sizeable income streams can reduce their tax burden by splitting their income between several family members. In particular, lower-income family members will benefit because their taxes will be lower. You can split your income with your spouse and split the tax burden by splitting the bills each spouse will pay.
3. Invest in charitable trusts or foundations
Philanthropic giving is a great way to significantly reduce your tax burden while contributing to the support of causes that you care strongly about. Consider establishing a foundation so that you can control how your contributions are utilized. Talk to a financial planner, who will have an extensive understanding of the best ways to give to charity.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
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