A wealth manager carefully assesses their clients’ assets, including properties, investments, deposits, etc., and develops financial planning and discipline for them. They oversee accounting, finance, taxation, retirement planning, legal/estate planning, investment planning, etc., so their clients keep accumulating wealth over a long period.
What Are the Most Effective High Net Worth Wealth Management Strategies?
Who Should Seek High Net Worth Financial Planning?
Whether an individual has a high net worth is determined based on the total value of their liquid asset or investible surplus. It includes the sum they have in savings or brokerage accounts. The immovable assets like residence and movable assets like collectables, durable goods, etc., do not account for this net worth. Generally, people having an investible surplus amounting ₹ 5 Crores are considered very high net worth individuals.
Different types of high net worth individuals in India are categorised according to their surplus investable amount:
- High Net Worth Person: They have liquid assets valuing ₹ 5 Lakhs to ₹ 5 Crores
- Very High Net Worth Person: They have liquid assets valuing ₹ 5 Crores to ₹ 25 Crores
- Ultra High Net Worth Person: They have liquid assets valuing more than ₹ 25 Crores.
If you belong to these categories of individuals, you need to develop sound financial planning to secure your wealth.
High Net Worth Financial Planning Strategies
Here are some of the strategies you can follow to develop financial planning to suit your needs:
- Investment Planning: Investment strategies for ultra-high-net-worth individuals are essential to beat the impact of inflation on their liquid assets. For this, they first need to create their investment accounts, determine their risk appetite, do market research and then put their money in stocks, bonds, or other instruments to build portfolios. If you invest in a business you correctly understand, it will be much easier to shortlist companies on which you can rely and invest. Nevertheless, if you do not know much about business or stock analysis, you can also seek the guidance of expert professionals.
- Estate Planning: Estate planning mainly refers to sorting out the ways how immovable properties will be handled after the owner’s demise. You may devise a will stating grounds for the inheritance, which encompasses whether or which properties your near ones will take over. Some high-net-worth individuals establish trusts or make charitable contributions to reduce their tax liabilities on their estates. As growing revenues is one of the goals for making high net worth wealth management strategies, you can make buildings and flats owned by you as rental properties. This will help you generate revenues from immovable assets. Nevertheless, the income will also help you overcome the loss caused due to the value depreciation of your buildings and flats.
- Retirement Planning: Retirement planning refers to the realisation of primary financial goals you want to fulfil after your superannuation and how you will achieve those without much difficulty. Developing proper high-net-worth financial planning strategies makes achieving these goals much easier. For example, if you recognise that your child will pursue higher studies around the time of your retirement, you can build a fund tailored to that. Furthermore, you may also intend to travel and explore. You can create separate funds for those and start investing/saving. There are several ways to build a retirement corpus. You can invest your money in mutual funds, fixed deposits, senior citizen savings schemes, etc. Nevertheless, while planning retirement, you should not overlook the importance of life or health insurance coverage.
- Taxation Planning: One of the significant wealth management strategies is tax planning. Its objective is to reduce income tax obligations lawfully. For this, you need to know the sections of the Income Tax Act that allow you to enjoy tax relaxation and align your financial plans accordingly, if possible. You can reduce your tax obligations by investing in some selected funds like Equity Linked Savings Scheme (ELSS), National Pension Schemes (NPS), etc. Further, the premiums paid towards your health and life insurance also let you reduce your taxable income. To enjoy all these benefits, you must file the Income Tax Returns (ITRs) form within a stipulated time as stated by the government.
- Portfolio Rebalancing: The investment portfolio contains different categories of instruments that you choose according to your risk appetite. For example, you may invest 60% of your investible funds in stocks, 30% in bonds and the remaining 10% in deposits from which you can get a fixed income. Nevertheless, if the stock market situation becomes adverse due to some macro/microeconomic aspects, you must liquidate some of your investment from the stock market. Then, you can allocate that amount to relatively less volatile instruments like debts, bonds, government securities, etc. This portfolio rebalancing lets you avoid losses. Further, with ageing, you should also ideally reduce your risk exposures. You can achieve that by rebalancing your portfolio. You must withdraw a certain percentage of your fund allocation from the stock market and put that money on debts or other fixed income-generating instruments.
- Income Planning: You can safeguard your wealth by ensuring a fixed monthly income even after your retirement. You can invest your money in fixed-income instruments, like bonds, fixed deposits, public provident funds, etc.
Using those, you can leverage the income generated from your investments as your paychecks and meet your lifestyle and other necessary expenses. This way, you will not have to liquidate your assets. All your investments will remain intact, which you can leverage in times of financial emergency in the future.
Which Tips to Follow While Making Net Worth Wealth Management Strategies?
Here are some of the tips you can consider while making your strategies for high-net-worth wealth management:
- Estimate the Total Surplus Amount: Before you approach wealth management, you need to find out the total value of your surplus amount. After this, you can properly understand how you will have to allocate that fund in different investment instruments to generate high revenue.
- Identify the Investment Instruments: You can invest your surplus amount in different fund types, such as stocks, bonds, securities, debts, mutual funds, fixed deposits etc. The instruments that generate higher returns are relatively more risk-prone. Therefore, you need to identify how to align your risk tolerance with your investment. In this regard, it is better to diversify your portfolio by allocating your money to different instruments. It will help you grow your fund even if one category of funds performs poorly.
- Get Insurance Cover: You should also protect yourself with health and life insurance policies. A life insurance policy will help you secure the financial interest of your family in case of your demise. They can claim lump sum death benefits to meet their expenses. If you survive, you will get a sizeable maturity amount after the term ends. On the other hand, a health insurance plan will let you cover costly treatment-related expenses.
- Split Your Family Income: The Income Tax Department of India frames the tax structure so that individuals with higher incomes need to bear a higher rate. For example, the income tax rate is 20% for individuals who earn between ₹ 5 Lakhs and 10 Lakhs/annum, but if the income is between ₹ 10 Lakhs and ₹ 15 Lakhs/annum, the rate increases to 30%. When you split your income with your family members, your direct gross income reduces, resulting in a decreased tax rate. This is why splitting family incomes becomes necessary while developing your high-net-worth wealth management strategies.
- Analyse Potential Financial Risks: You must recognise the potential risk factors that can negatively impact your wealth. After recognising those factors, you can develop a suitable plan beforehand to handle them. For example, you can tackle your health emergencies with a health insurance policy. Likewise, you can get several other types of general insurance plans for safeguarding specific items.
- Educate Children About Financial Responsibility: It takes years of financial acumen to build a high net worth of wealth. If your kith and kin have no idea about the hard work behind your financial position, they may not understand its real value and keep spending as they wish. So if you intend to make your wealth last for one or more generations, you need to instil the habit of financial management from an earlier stage. It will motivate them to stay away from the habits of wasting money.
- Find a Financial Advisor If Necessary: You can also take the advice of an experienced wealth manager to secure your assets. They can guide you on how to save more on tax, where to put your money to prevent losses, etc.
What Are the Benefits Of Making High Net Worth Financial Planning?
Here are some advantages you can obtain by effective planning:
- Cope With Uncertainties: Proper financial planning gives you the confidence that your money will stay safe and secure. You can estimate their performance and expect higher returns. This way, you can reap the fruits of your investment for longer.
- Secure Post-Retirement Financial Needs: High net-worth wealth management strategies to help you secure a sound financial position for you even after you stop getting a regular salary. You can easily substitute your salary with the revenues generated from interest, rent, returns, etc. In fact, by that time, you will also get accumulated maturity benefits from your life insurance plans.
- Reduce Tax Liabilities: You can also reduce your tax obligations to a large extent by channelling your investible funds properly. It will reduce your annual payable to the tax department of India and help you save money.
- Define Inheritance of Properties: You will also be able to set the legal heir of your business or properties by making a well-thought-out wealth management plan. If you intend to distribute your estates among your children and spouse after your demise, you can make your will for doing so. Furthermore, the planning also lets you decide who will take over your business after you beforehand.
Effective management of wealth is essential to deal with financial liabilities and simultaneously create income opportunities. High net worth wealth management strategies let you meet these objectives by taking proper financial decisions. Moreover, with sound strategies, as mentioned above, you can protect your vast wealth for one or more generations and secure the financial interest of your successors.
FAQs About High Net Worth Wealth Management Strategies
You can diversify your investment portfolio by purchasing stocks, bonds, government securities, etc. Further, you should ideally include company stocks from different sectors after checking their business fundamentals and growth propensity. All these need proper research, as their performance depends hugely on the current market condition.
If you want to ensure that any medical emergency does not impact your wealth, you need to ensure that your family members also have coverage of health insurance plans. It will help you avoid liquidating your retirement funds to tackle the situation.
The main objective of a wealth management strategy is to secure the optimal profit by utilising the existing assets. It targets to achieve the objective both in the short and long term.
The wealth preservation strategy aims to ensure that the overall value of assets does not wane or depreciate with time. To meet this objective, individuals generally invest in annuities and real estate.
Other Important Guides About Wealth Management
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
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- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.