High-net-worth individual

High-net-worth individual (HNWI) is a term used by some segments of the financial services industry to designate persons whose investible assets (such as stocks and bonds) exceed a given amount. Typically, these individuals are defined as holding financial assets (excluding their primary residence) with a value greater than US$1 million.^[1][2][3]

However, there are distinct classifications of HNWI and the exact dividing lines depend on how a bank wishes to segment its market. For example, an investor with less than US$1 million but more than US$100,000 is considered to be "affluent", or perhaps even "Sub-HNWI".^[1] "Very-HNWI" (VHNWI) can refer to someone with a net worth of at least US$5 million.^[4]

By 2007, the expansion of HNWI assets led to the creation of a super class of HNWIs, known as ultra-high-net-worth individuals (UHNWIs), i.e. those with US$30 million in liquid financial assets according to the Capgemini and Merrill Lynch World Wealth Report 2006^[3][5] or with a disposable income of more than US$20 million.^[6]

At the end of 2016, there were just over 13 million HNWIs in the world. The United States of America had the highest number of HNWIs (4,400,000) of any country, whilst London had the most HNWIs (357,000) among cities as based on data from the Knight Frank Wealth Report.^[7]

United States: SEC regulations

The U.S. Securities and Exchange Commission requires all SEC-registered investment advisers to periodically file a report known as Form ADV.^[8] Among other things, Form ADV requires each investment adviser to state how many of their clients are "high-net-worth individuals." The Form ADV Glossary of Terms explains that a "high-net-worth individual" is an individual with at least $1,000,000 managed by the reporting investment adviser, or whose net worth the investment adviser reasonably believes exceeds $2,000,000 (or who is a "qualified purchaser" as defined in section 2(a)(51)(A) of the Investment Company Act of 1940). The net worth of an individual for SEC purposes may include assets held jointly with his or her spouse. Unlike the definitions used in the financial and banking trade, the SEC's definition of HNWI would include the value of a person's verifiable non-financial assets, such as a primary residence or art collection.

Annual World Wealth Report

The World Wealth Report was co-published by Merrill Lynch and Capgemini, previously known as Cap Gemini Ernst & Young who worked together since c. 1993, investigating the "needs of high-net-worth individuals (HNWIs are individuals with more than $1 million in assets excluding primary residence)" in order to "successfully serve this market segment." Their first annual World Wealth Report was published in 1996.^[9] The World’s Wealth Report^[10] defines HNWIs as those who hold at least US$1 million in assets excluding primary residence and ultra-HNWIs as those who hold at least US$30 million in assets excluding primary residence. The report states that in 2008 there were 8.6 million HNWIs worldwide, a decline of 14.9% from 2007. The total HNWI wealth worldwide totaled US$32.8 trillion, a 19.5% decrease from 2007. The ultra-HNWIs experienced the greater loss, losing 24.6% in population size and 23.9% in accumulated wealth. The report revised its 2007 projections that HNWI financial wealth would reach US$59.1 trillion by 2012 and revised this downward to a 2013 HNWI wealth valued at $48.5 trillion advancing at an annual rate of 8.1%.^[11]

The 2013 World Wealth Report^[12] was jointly produced by Capgemini and RBC Wealth Management and included, for the first time, the Global HNW Insights Survey produced in collaboration with Scorpio Partnership. The inaugural survey represented one of the largest and most in-depth surveys of high-net-worth individuals ever conducted, surveying more than 4,400 HNWIs across 21 major wealth markets in North America, Latin America, Europe, Asia-Pacific, Middle East, and Africa. Scorpio Partnership have established themselves as a market leader in the supply of HNW insight having spent over 15 years conducting private client interviews, collecting business intelligence and working with over 100 clients who range from universal banks, domestic retail banks, specialist private banks and fund managers, to family offices, high-net-worth clients and regulatory bodies. The partnership is independently owned and managed by Sebastian Dovey and Cath Tillotson and carries out global assignment overseen from its base in London's West End.

Capgemini figures

The "World Wealth Report" published Capgemini has estimated the number and combined investable wealth of high-net-worth individuals as follows,^[15][16][17] using the United States Consumer Price Index (CPI) Inflation Calculator.^[18]

Banking and finance

Most global banks, such as Credit Suisse, Barclays, BNP Paribas, Citibank, Deutsche Bank, HSBC, JPMorgan Chase and UBS, have a separate business unit with designated teams consisting of client advisors and product specialists exclusively for UHNWI. Because of their extreme high net worth and the way their assets were generated, these clients are often considered to have characteristics similar to institutional investors.

By 2006, asset managers working for HNW individuals invested more than £300 billion on behalf of their clients. These wealth managers are bankers who in 2006, earned multimillion-pound salaries and owned their own companies and equity funds.^[28] In 2006, a list of the 50 top investment bankers was published by the Spear's Wealth Management Survey.

Retail

Brands in various sectors, such as Bentley, Maybach, and Rolls-Royce in motoring, actively target UHNWI and HNWI to sell their products. In 2006, Rolls-Royce researchers suggested there were 80,000 people in ultra-high-net-worth category around the world. UHNW individuals "have, on average, eight cars and three or four homes. Three-quarters own a jet aircraft and most have a yacht."^[6]

Knight Frank Wealth Report

Knight Frank has been publishing an annual wealth report since 2005. The following is a list of the cities with the most number of HNWIs as of December 2016 according to data compiled for the Knight Frank Wealth Report by New World Wealth.^[7]

Rank	City	Number of HNWIs (2016)
1	London	357,000
2	New York City	339,000
3	Tokyo	280,000
4	Hong Kong	228,000
5	Singapore	217,000
6	San Francisco Bay Area	180,000
7	Los Angeles	173,000
8	Chicago	135,000
9	Frankfurt	128,000
10	Beijing	122,000

Academic studies of asset management trends

The Wharton Global Family Alliance whitepaper was released in 2008 to study the investment strategies of single family offices in the United States and in Europe.^[29] The research was segregated into sub-groups representing those with less than $1 billion in assets and those with assets above $1 billion. The study found that U.S. families reported a more aggressive attitude toward investment objectives than their counterparts in Europe. One recommendation of the WGFA study advised the advisors and family offices serving this niche to avoid complexity in the structure of portfolios.

The authors cite that the more complex the portfolio and number of holdings, the more difficult the job of performing adequate governance, reporting, and education. The Institute for Private Investors, a peer networking organization for wealthy families and their advisors, suggested a similar theme to its membership in 2008 with a conference themed, "The Return to Simplicity".^[30] Kotak Wealth Management and CRISIL Research, published a report on the Ultra High Net Worth Individuals in India titled "Top of the Pyramid Report".^[31]

High-net-worth individual's taxable portfolios

Since 2009, the Gannon Group has managed wealth for exclusively HNW and UHNW individuals and families at Morgan Stanley's Portfolio Management Group.^[32][33] In his book entitled Investing Strategies for the High Net Worth Investor: Maximize Returns on Taxable Portfolios,^[34] Gannon Group's executive director Niall Gannon investigated asset management strategies for high tax bracket investors on taxable portfolios. Gannon advises taxable investors in terms of long-range estate planning decisions and assists them in making more accurate estimates of their expected total portfolio value. He studied the S&P 500 index on an after-tax basis and found the return to be 6.63% after paying taxes at the top prevailing federal tax rate and a constant average of 6% for state taxes from January 1, 1957, through December 31, 2010.^[34]

Additional results from Gannon's research found that a portfolio of municipal bonds out-performed the re-invested S&P 500 index in 17% of the rolling 20-year periods since the inception of the index. Gannon rejects the use of historical returns for future asset allocation modelling for high-net-worth investors. He argues that an observation of stock portfolio earnings yields (the inverse of the p/e ratio) are more indicative of the future return potential of the portfolio when modelled with the impact of taxation on performance.^[34]

Liability insurance

High-net worth individuals have unique risks to their wealth through legal liability and tort law. Therefore, they commonly purchase umbrella insurance policies which further protect them from expensive lawsuits. These "umbrella" policies are designed in an open-ended way to cover risks which fall through the "gaps" of other insurance policies. They are also commonly specifically designed to have higher limits for covering lawsuits resulting from expensive vehicle accidents, home accidents, defamation, and fiduciary liability arising from nonprofit board volunteering.^[35] In the United States, a trade group called the Council for Insuring Private Clients was formed in 2012 to focus on this market.^[36] Companies known to focus on the market include Chubb,^[37] ACE Limited and Privilege Underwriters Reciprocal Exchange (Pure).^[38]

As a cheaper alternative, a "personal excess" policy may be purchased instead, which is not designed to cover the gaps in coverage the way that an umbrella policy does.^[35]

See also

• Billionaire
• Ultra high-net-worth individual
• Millionaire
• Middle Class
• Global assets under management
• Plutonomy
• Politically exposed person
• Swiss bank
• Wealth

References

External links

• 2013 World Wealth Report (WWR) (PDF) (Report). Capgemini. 2013.