Why High-net-worth Individuals Will Benefit from Wealth Management 

How quickly can you identify all of your assets? Do you know how their performance fits into your short, medium, and long-term goals? Are you considering tax efficiency with every investment decision? Is your investment portfolio set up to weather market volatility and manage risk? If you are a high-net-worth individual, these questions may be difficult to answer, which is why you would benefit from a wealth management team.  

A high-net-worth individual (HNWI) is generally defined as a person or family with liquid assets exceeding $1 million. Their wealth grants them a certain level of freedom, but it also brings a distinct set of challenges. Failure to overcome these challenges is a common issue, and it results in ruin more often than you would imagine.  

To identify and overcome these challenges, HNWIs typically partner with a financial advisor, or more specifically a wealth advisor, to help guide them. However, finding a financial advisor equipped for the challenge of managing significant wealth requires a specialized approach and deliberate consideration. Before you start the search, we recommend that you take some time to define your needs, understand your goals, and know which services your wealth management firm should offer. Although the needs and goals of HNWIs vary depending on lifestyle and situation, the services required for successful wealth management remain relatively constant. 

Key Elements of High-net-worth Wealth Management 

Just like successfully operating a grocery store is different than running a produce stand at the farmer’s market, managing the finances of a HNWI requires a more refined skill set when compared to an average-net-worth individual. While the two share similar guiding principles, the end goals and strategies for success can be wildly different. To meet their unique needs, a HNWI should look for a wealth management firm that offers the following services:  

• Tax Planning 
• Alternate Investments 
• Charitable Giving Strategy 
• Estate Planning 

Tax Planning 

One of the biggest challenges High-net-worth individuals face is growing their wealth while managing tax liability. High-income earners sit in a higher tax bracket, and taxable events such as retirement income may further complicate your taxes. An effective tax planning strategy can help you manage these complexities and minimize your tax liability. Three tax-efficient strategies (of many) for high-net-worth accounts include: maximizing deductions, tax-loss harvesting, and deferring capital gains. 

• Maximizing Deductions: One of the most common strategies to minimize taxable income is maximizing deductions. For high-net-worth individuals, this could include taking advantage of charitable donations, mortgage interest deductions, and retirement account contributions. 
• Tax-loss Harvesting: In a volatile market, tax-loss harvesting can help reduce tax liability on investments by offsetting gains with losses. This strategy involves strategically selling investments at a loss to offset gains in other areas of your portfolio, thereby reducing the overall tax burden.  
• Deferring Capital Gains: High-net-worth individuals may also have the option to defer capital gains by utilizing certain investment vehicles such as qualified opportunity zones and like-kind exchanges. These strategies allow for the deferral of tax on realized gains, potentially resulting in significant tax savings over time. 

Alternate Investments 

High-net-worth individuals have access to a wider range of investment opportunities beyond traditional stocks, bonds, and cash. These opportunities are not usually available to the general public, nor are they suited for the average person’s needs. They typically offer less liquidity than standard securities, have a high barrier for entry, and may be prone to elevated instances of volatility. Individuals and families with a high net worth tend to have a higher risk tolerance and can ride out market downturns. This combination of traits makes HNWIs ideal candidates for taking advantage of these potentially lucrative opportunities.  

A recent report from Cerulli Associates revealed that high-net-worth individuals who hold at least $5 million in investable assets allocated nearly 10% of their assets to alternative investments. Aside from the potential for greater return, alternate investments such as private equity opportunities, real estate, and hedge funds all offer valuable diversification. These investment categories also help to provide security against inflation and can be integral to your wealth management strategy.  

Charitable Giving 

Charitable giving is an essential aspect of high-net-worth financial management. Not only does it provide the opportunity to give back and support causes that are important to you, but charitable donations can also offer significant tax benefits. Yearly deductions are limited to 60% of your adjusted gross income (AGI), but in some cases, it may be less. You can find specifics on deduction limits by referring to IRS Publication 526, but it will generally depend on the following factors: 

• Type of asset donated 

• Length of time the asset has been owned 
• The type of organization that receives the donation.  

One popular charitable-giving strategy is a donor-advised fund (DAF). A DAF is a type of charitable investment account that provides an immediate tax deduction when contributions are made into the account. DAFs allow donors to recommend grants to charities over time, and the contributions to the fund continue to appreciate tax-free. This structure allows HNWIs to benefit from tax deductions immediately while retaining control over how and when the funds are distributed. 

Estate Planning 

Estate planning is one of those tasks that is easy to put off. Nobody ever likes to think about the inevitable end that we all meet, but failing to plan for future generations can severely impact your legacy. A recent survey from Gallup found that only 46% of American adults have end-of-life plans that outline estate management wishes. The remaining majority runs the risk of dying intestate, which is a legal term for anyone who passes away without a will. The financial fate of these estates falls into the hands of the court system. 

Many HNWIs fall into the category of Americans with established wills, but an estate plan is not a once-and-done process. An outdated will can cause just as much havoc, especially if your family status has changed. Births, deaths, marriages, and divorces can all desynchronize your estate plans. The complexity of high-net-worth estates requires a more prudent approach. Be sure to review these documents once every few years. 

But estate planning goes beyond establishing and maintaining a will. Unwanted taxable events, such as incidents of ownership on life insurance policies and misaligned beneficiaries, can hinder the fulfillment of your last wishes. A high-net-worth estate planner will work with you to outline the complex tax landscape and make sure that your beneficiaries remain updated across your retirement accounts. 

Benefits of High-net-worth Wealth Management 

As the net worth of an individual grows, so does the need for specialized wealth management. Failing to optimize your strategy could lead to costly mistakes, mismanaged funds, and lost opportunities. By working with a qualified wealth advisor, you can develop a comprehensive plan to minimize tax liability, take advantage of alternate investments, incorporate charitable giving into your strategy, and ensure that your legacy lives on.  

For HNWIs who lack the time, knowledge, or interest to effectively manage their wealth, a family-office style firm provides access to high-net-worth financial advisors, estate planning attorneys, certified public accountants, tax specialists, and other financial professionals. This holistic approach provides a full wealth management toolkit under one roof, relieving the burden of service coordination and unifying the overall strategy. 

At Morgan Rosel Wealth Management, our fiduciary wealth advisors maintain a focus on the needs of our clients. We understand the unique challenges that come with managing significant wealth, and our team of professionals has the expertise and experience necessary to navigate this complex landscape. Our goal is to provide peace of mind while helping to guide, guard, and grow your wealth. Contact us today to speak with a fiduciary wealth advisor and see how we can assist you in managing your high-net-worth portfolio.