Wealth Management for High-net-worth Families – What is wealth management? Wealth Management services are financial advisory services that offer personal financial planning, investment advisory services, and estate planning.
In this article, we cover the challenges faced by high net worth families and the steps to manage their wealth in both the short and long term.
What is a high-net-worth family?
A high-net-worth family is defined as a family with over $1 million in liquid and non-liquid assets. In addition, the average super-high-net-worth family has more than $30 million in assets.
Being a high-net-worth individual comes with its own set of challenges. Unlike many people who would be thrilled to have millions of dollars in the bank, you might feel anxious about how to effectively manage your money and ensure that it will last for generations to come.
You might be concerned about how to best invest your money and provide for your children, grandchildren, and beyond.
What challenges do they face?
The wealthy have different financial challenges than the rest of us, but that doesn’t mean they don’t run into problems. Here are some of the issues that can be unique to high-net-worth families and how they can be addressed:
Passing on family business: The family business is often the core asset of a wealthy family. When it comes time to pass it on, how do you combine it with other assets to maintain the wealth? Financial planning can smooth out tax issues and help avoid estate disputes.
Creating an inheritance: If the family business is doing well, how can you help younger generations prepare for their own futures? Without an inheritance plan, they may not be able to maintain their lifestyle. Again, proper financial planning is essential.
Keeping up with lifestyle changes: Some families will grow richer as they get older, which means their lifestyles will change dramatically. How do you manage those expectations if your wealth goes up faster than your investment returns? You need to set up a proper budget and stick to it.
Making money last as long as necessary: Some families have a problem where assets or income aren’t enough for the next generation. It’s hard to let go of money when you’re used to having plenty, but sometimes cutting back your spending is not a bad idea.
Here are some wealth management strategies for High Net Worth Families
Estate Planning
Estate planning is an important component of wealth management.
Estate planning is the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. Guardians are often designated for minor children and beneficiaries in incapacity.
Typical reasons to engage in estate planning include minimizing estate taxes and probate costs, providing security for surviving spouses, ensuring that family members receive their intended inheritance, protecting family business interests, providing care for minors or heirs with special needs, etc.
Concentrated Wealth
Concentrated wealth often has its roots in a single industry. For example, in the U.S., many wealthy families started with oil, energy or real estate investments. Some have expanded their fortunes by selling related companies to other corporations or private equity firms.
When a family’s wealth is concentrated in a particular industry, it can be difficult to diversify away from it completely while still maintaining an acceptable standard of living. That’s why the first step in building an effective family office structure is to understand where your family’s wealth comes from and how it can be protected if that source is ever disrupted.
Family Dynamics
The family dynamics can change when it comes to managing finances for large families or high-net-worth families. They will have different personalities and opinions about how the money should be handled. They may also have different goals for the future. It is important that the family is able to work together as a team in order to ensure that there are no problems with the financial plan being created for them.
Trust and Foundation Services
Trusts and foundations are often created by wealthy families to protect their assets and provide for the next generation. They can also be used for charitable purposes. They are legal entities with special tax status.
They allow you to control the distribution of your assets during your lifetime and after your death.
Asset Management
Asset management is a method of deploying, administering, and disposing of assets in a manner that will maximize their usefulness and benefit the owner. It helps an individual or company to meet its financial goals.
Financial Planning
Financial planning is more concerned with the big picture of your finances. They’ll help you prepare for short-term goals like buying a home, as well as long-term goals like retirement and estate planning.
An experienced financial planner will know the right questions to ask when helping you plan for these life events, such as what age you plan on retiring at, and how much money you’ll need in retirement to live comfortably.
Investment Management
Within wealth management, investment management refers to the day-to-day management of your portfolio. This is done through an investment advisor, who will take into consideration your financial situation and goals in order to better understand what assets to buy and sell in order to improve your overall portfolio.
Tax Planning & Preparation
Taxes are another important aspect of wealth management, especially for those with large amounts of income or assets. A professional tax planner can help you understand how certain investments and transactions may affect your taxes, as well as help you determine if there are any tax benefits.
Conclusion
In the end, independent wealth management is the key to success for high-net-worth families. Using an independent financial advisor can enable these families to preserve and pass on their fortune for years and decades to come.
A good financial advisor will help high-net-worth families work with their money, rather than simply hope that it grows on its own. They’ll also ensure that their clients don’t take too much investment risk by diversifying into low-risk assets like bonds, cash and treasury bills.