The Financial Planning Process for High-Net-Worth Individuals

financial planning
March 17th, 2020 0 Comments

Have you managed to make yourself part of that elite portion of the population that can call themselves high-net-worth individuals? Then you’ve got at least $3 million in investable assets, or more than $10 million if you’re an ultra-high-net-worth individual.

Yet, chances are, you’ve worked really hard to amass that kind of wealth. While it’s unlikely that you’ll go bankrupt any time soon, it takes the same kind of diligence and hard work to manage your wealth in a way that will continue to benefit you. Which is why today, we’ll take about the importance of the financial planning process for high-net-worth individuals.


Why Financial Planning is Important

One thing just about every person’s financial situation has in common is that there are goals they’re trying to achieve. The first step in financial planning is to define personal and financial goals- both long and short term.

While some are planning to pay off student loans or save for retirement, others are focused on estate planning and providing wealth for future generations. In any case, one of the best things you can do to make your financial goals a reality is to create a financial plan.

A financial plan is a comprehensive breakdown of a person’s financial goals and the methods for achieving them.


Understanding Your Unique Situation

Financial plans are like fingerprints; no two are exactly alike. Your financial goals, the makeup of your investment portfolio, your age, even where you live and your lifestyle choices play a part in making your situation unique.

On top of the above factors, high-net-worth individuals are even further in a category of their own. Having more wealth than the average person means you’ll fall into different tax brackets and have to consider additional types of tax like capital gains tax.

A unique situation requires a unique approach. Financial plans are especially important for the extra wealthy, and so is finding the right financial planners.


Who Can Help?

Fortunately for anyone with a financial portfolio, there are plenty of financial service providers out there. Finding a financial advisor is a great way to look after your financial future, but so is becoming educated yourself.

To set you off on the right foot, we’ll go over some tax planning essentials and investment strategy fundamentals later in this post.


Tax Planning for High-Net-Worth Individuals

No matter how you look at it, taxes are something that we all must deal with. For individuals with particularly high net worth, proper tax planning is even more important. Without intelligent tax strategies, you run the risk of missing out on crucial tax benefits which can mean paying much more than you need to.

Tax law is complicated, and even more so for people with large amounts of wealth. Unfortunately, there’s more to worry about than just your income tax. Understanding the basics can do a lot in preparing you for tax time. Hiring a professional can get you the rest of the way.


Capital Gains Tax

Most especially wealthy people benefit from capital gains, and the associated tax is something you’re probably familiar with. It’s the tax imposed on earnings made from investments. One thing that’s good to be aware of is the different ways the tax applies to short-term gains and long-term gains.

Short-term capital gains are those made on investments that have been held for less than one year. These have a higher tax associated with them compared to long-term capital gains, or gains from investments held for more than one year.

Good tax planning involves planning accordingly to these two different classes of capital gains.


Gift and Estate Taxes

The Tax Cuts and Jobs Act passed by the Trump administration meant quite a few changes to the tax code, many of which have a significant impact on high-net-worth individuals. One of the things that changed is the exclusion limit on gift and estate taxes.

The exclusion limit has doubled since 2017, meaning you can leave more money to others while getting your tax break. Taking advantage of this change is just one way you can make tax planning work for you.


Investing as a High-Net-Worth Individual

The fundamental approach to a strong investment portfolio doesn’t change much with the net worth of the investor. You need to take into account your financial goals, your risk tolerance, and your time horizons. Then, you need to remember to strive for diversity in every step of the way.

Financial Goals

This is something we’ve spoken about time and time again. Your goals are your own, and your finances should be adequately tuned to help you reach them. A common financial goal might be to set up an emergency fund or to pay off a house mortgage.

High-net-worth individuals tend to have different sets of goals. Individuals with this kind of net worth usually have a substantial emergency fund and might not have a mortgage. Instead, their goals could be directed toward estate planning and providing wealth for future generations.


Risk Tolerance

This is another idea we’ve touched on before. Investing in any capacity involves some risk. How much risk you are comfortable with is up to you. Of course, keep in mind that the risk-return-tradeoff dictates that higher risk brings higher reward and vice-versa.


Time Horizons

Finally, the amount of time you have to reach your financial goals will have a large impact on the best way to manage your investments. Those with longer time horizons may be able to handle investments that are riskier in the short term in favor of higher returns in the long run. Investors with short time horizons will typically want to make less risky investments to avoid losing too much wealth without the chance to recoup their losses.


Retirement Planning

Retirement planning strategy actually falls into both the “investing” and “tax planning” categories. There are a number of tax-advantaged retirement accounts that make your investment plan stronger and build your retirement savings.

Contributions to both IRAs and 401k plans are tax-deductible, but you will pay income tax on the withdraws you make in retirement. Roth IRAs, on the other hand, don’t offer any tax breaks at the time of contribution; instead, they allow your money to grow tax-free while you approach retirement. You do not have to pay any taxes on withdraws from this type of account in retirement.


More About the Financial Planning Process

This process is all about taking stock of your current situation, identifying how you’d like it to change in the future, and developing a plan of action to make it happen. Another important step in this process in measuring progress.

The best first step you can take is looking for skilled certified financial planners (CFP). Finding a CFP professional that you can trust will be the strongest move you can make and will give you peace of mind knowing that you’re making well-informed decisions.

After you’ve found someone you can trust, you’ll need to gather all relevant financial data. This will allow the CFP and yourself to accurately evaluate your financial status.

At this point, you’ll have a clearer understanding of where you are with your finances. This will help you be more specific about where you want to go financially. You’ll then receive recommendations from your financial advisor and can identify the options that sit right with you.

Finally, regular reviews of your progress are what will keep you moving in the right direction. The right financial professional by your side will know the best way to adjust your financial strategies as you get closer to reaching your goals.


The Right Financial Planner

Finding a financial planner who can help you meet your goals and serve as your coach is no small task. The market is flooded with wealth management service providers. The bulk of financial advisors work as part of large corporations that are able to reduce costs by serving tons of clients. This is something to look out for — the high-net-worth individual will require a different level of service.

When looking for the right financial planner to help you meet your goals, consider the following questions:

  1. Do you feel like you can trust them?
  2. Do they have extensive relevant experience?
  3. Are they properly credentialed?
  4. Will they be there when you need them?

The answers to these questions are what should ultimately drive your decision in choosing a financial planner. If you’re considering hiring one and don’t know the answer to a question above, don’t be afraid to ask them directly.

The financial planning process is extremely important to your future personal finance. This is especially true for high-net-worth individuals who have a lot to gain or lose. You can be sure to look after your future by first becoming educated on the basics of financial planning and then seeking an advisor who can provide more guidance. If you don’t already have the right financial planner by your side, it might be time to find one.


We Can Help

There are few things that affect as many areas of your life as your wealth. Treat it with the attention it deserves and it will repay the favor. Whether you’re thinking about retirement, estate, or financial planning or want to use your wealth to provide for younger generations, proper wealth management is what will make it happen.

At Saddock Wealth, we bring years of wealth management experience to the table and can help guide you toward financial prosperity. Make sure your wealth is in the right hands and ready to grow in 2020. Schedule a meeting here, and we’ll discuss your best options.



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The Financial Planning Process for High-Net-Worth Individuals
Managing wealth is no easy feat, and most require some professional guidance. See our tips for finding the right advisor for the financial planning process.
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