If you’re considering high-net-worth financial planning, you’ve probably already accumulated significant assets. While that’s a major milestone in itself, it’s not quite the end goal of your personal financial journey. Now it’s time to maximize and protect those assets to ensure a strong financial future for you and your family.
Financial planning is beneficial for anyone who is serious about achieving their personal goals — but for high-net-worth individuals, it’s especially important. The more wealth you’ve built, the more complex your financial needs probably are, and the more difficult it can become to handle them yourself. But how do you know when you’ve reached that point?
When Is It Time for High-Net-Worth Financial Planning?
It’s usually pretty easy to tell when your taxes have become too complex to handle yourself. Recognizing when you’re ready to pursue high-net-worth financial planning, on the other hand, isn’t always as straightforward.
Here are a few questions you can ask yourself to help determine whether you’re ready for it:
- Do you have a clear list of personal financial goals and the right balance of investments to achieve them?
- Is your portfolio structured in a way that optimizes returns, reduces risk, and minimizes your tax liability?
- Will your retirement funds complement your taxable investments to support the lifestyle you envision?
- Have you taken all the proper steps to protect the assets you’ve worked hard to accumulate?
- Do you have — and are you willing to spend — the time it takes to craft and maintain a comprehensive personal financial plan?
If you answered “no” or “I’m not sure” to one or more of these questions, you probably would benefit from high-net-worth financial planning with a qualified personal CERTIFIED FINANCIAL PLANNER® professional.
Read More: What to Look for in a Financial Advisor – 6 Essential Qualities
The Benefits of High-Net-Worth Financial Planning
High-net-worth individuals who have checked off all of the basic to-dos of personal finance — accumulating assets, maximizing tax-advantaged retirement contributions, minimizing unusually large expenses — may feel like they’re equipped to handle their finances on their own.
But CERTIFIED FINANCIAL PLANNER® professionals have knowledge, experience, skills, and tools that the general public doesn’t. That makes them uniquely qualified to offer high-net-worth financial planning services. Even if you have a solid grasp of personal finance, the right financial advisor will almost certainly be able to identify high-net-worth financial planning strategies you either haven’t pursued or haven’t optimized.
If you’re still on the fence about whether to partner with a financial planner, consider these data points:
- Vanguard estimates that financial advisors add an average of 3% in net returns per year for clients.1
- In a survey from Northwest Mutual, 66% of respondents with a financial advisor said they felt financially secure, compared with just 30% of those who didn’t have a financial advisor.2
- 70% of respondents working with a financial advisor said they were happy with their life, compared with just 50% of respondents who didn’t work with a financial advisor.2
- Another study from Northwestern Mutual found that financial advisors are the #1 most trusted source of financial advice, above spouses, family members, business news, and others.3
- Research from the Certified Financial Planner Board of Standards found that 73% of those working with a CERTIFIED FINANCIAL PLANNER® felt prepared for a potential recession.4
High-Net-Worth Financial Planning Strategies
We’ve gone over when you should start thinking about high-net-worth financial planning and why it’s beneficial — but what exactly do high-net-worth financial planning strategies look like? While no two people share the same financial goals or circumstances, there are several common challenges and issues high-net-worth individuals face that may benefit from one or more of the following strategies.
Tax Optimization
Typically, the more wealth you hold, the greater your tax burden. If you’ve received a large block of stock options, hold appreciated stocks in a taxable brokerage account, or take sizable profits out of a business, developing a financial plan that reduces that associated tax liability is especially important. Fortunately, there are a number of high-net-worth financial planning strategies you can employ to mitigate your tax liability.
For example, you can choose to structure and manage your investments in a way that reduces your tax liability by keeping taxes from eroding your gains.
Those strategies might include:
- Allocating funds across a mix of tax-deferred versus tax-free investments
- Determining the most tax-advantaged approach to draw down funds once you reach retirement
- Creating a backdoor Roth IRA
Family Gifting and Transfers
For many people, financial wellness isn’t just about achieving their own personal goals — it’s about ensuring a secure financial future for their family and loved ones. Whether you want to gift money during your lifetime or transfer wealth after you pass, high-net-worth financial planning can allow you to accomplish your goals effectively and tax-efficiently.
Some ways to do so might include:
- Gifting annual sums to children or grandchildren — for 2023, individuals can gift up to $17,000 per recipient per year tax-free, while married couples can gift up to $34,000.5
- Creating and contributing to a 529 college savings plan for children or grandchildren. The same thresholds apply when you gift funds to a 529 plan for a child’s future educational expenses. You could even front-load up to five years’ worth of tax-free gifts to a 529 plan to potentially reduce exposure to estate tax.
- Incorporating a trust into your estate plan to ensure assets are passed down according to your wishes and without probate delays.
Charitable Giving
Charitable giving is a win-win. Not only does it allow you to support organizations working toward the causes you care most about. It also allows you to reduce your taxable income. And the greater your portfolio, the greater the impact you can have.
High-net-worth individuals may benefit from:
- Transferring assets to a donor-advised fund (DAF) before selling the assets, then donating the cash proceeds
- Using your retirement account Required Minimum Distributions (RMDs) to donate to charities
- Developing a dedicated charitable giving plan
Diversifying Your Portfolio
The saying, “Don’t put all your eggs in one basket” applies to many different situations, but few are more relevant than investing. Tying up a substantial portion of your wealth in a single investment is much riskier than diversifying it across thousands of businesses through individual stocks and mutual funds. High-net-worth financial planning can help you assess whether you have too much of your wealth concentrated in one basket — and if so, spread it across multiple investments.
This might include:
- Selling off part of your equity in your personal business and investing the proceeds across a variety of low-cost mutual funds and exchange-traded funds (ETFs).
- Rebalancing your investment mix to better align with your risk tolerance and goals
- Evaluating appropriateness of alternative investing options, such as private equity
Ensure a Bright Future With High-Net-Worth Financial Planning
Well-conceived, well-executed high-net-worth financial planning strategies can help you maximize and protect the wealth you’ve accumulated. And there’s no better way to get started than by consulting a CERTIFIED FINANCIAL PLANNER® professional like the ones at Team Hewins.
No matter what stage of life you’re in, Team Hewins can help you take an integrated approach toward high-net-worth financial planning. Our proprietary Smart Life Planning Process considers cash flow, taxes, investments, insurance, estates, and more — resulting in a comprehensive financial plan that reflects your circumstances, priorities, and values.
Get started today by scheduling a free consultation!