Understanding High Net Worth Individuals (HNWIs): Definition & Affluent Investors

A high net worth individual (HNWI) refers to an individual with a net worth of a minimum of $1,000,000 in highly liquid assets, such as cash and cash equivalentsCash EquivalentsCash and cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, banker's acceptances.

Individuals with less than $1,000,000, but more than $100,000 are called sub-HNWI or affluent investors. A very high net worth individual is a person with at least $5,000,000, while an ultra-high net worth individual owns a minimum of $30,000,000 in investable assets, excluding personal assets and property (e.g., primary residence, consumer durables, and collectibles).

Quick Summary 

• A high net worth individual (HNWI) is a wealthy person with at least $1 million in liquid assets.
• Private wealth management represents the capital management of corporations, institutional investors, and HNWIs who contribute financial means to be invested into capital markets to generate returns.
• HNWIs often receive special treatment from financial institutions because of the business they bring in.

What is Private Wealth Management?

The term “high net worth individual” is extensively used in the world of private wealth managementPrivate Wealth ManagementPrivate wealth management is an investment practice that involves financial planning, tax management, asset protection and other financial services for high net worth individuals (HNWI) or accredited investors. Private wealth managers create a close working relationship with wealthy clients to help build a portfolio that achieves the client’s financial goals.. In other words, it represents the management of assets of private entities, including HNWIs or accredited investors, where investors contribute capital for management to financial institutions, such as investment banks. It implies investing capital to generate returns (profits), taking a risk.

Investment banks, independent financial advisors, and specific funds cultivate a close working relationship with wealthy clients to understand their goals and define investment strategies.

Private wealth management includes:

• Portfolio managementPortfolio Management Career ProfilePortfolio management is managing investments and assets for clients, which include pension funds, banks, hedge funds, family offices. The portfolio manager is responsible for maintaining the proper asset mix and investment strategy that suits the client's needs. Salary, skills,
• Estate planning
• Mortgage planning
• Assets protection
• Tax managementAccounting For Income TaxesIncome taxes and their accounting is a key area of corporate finance. There are several objectives in accounting for income taxes and optimizing a company's valuation.

What are the Privileges of High Net Worth Individuals?

High net worth individuals are offered special treatment (exclusive services) by financial institutions, e.g., unlimited spending or luxury hotel upgrades, 24-hour concierge service, etc.

The privileges are as follows:

• Invest in reputable private equityPrivate Equity FundsPrivate equity funds are pools of capital to be invested in companies that represent an opportunity for a high rate of return. They come with a fixed and hedge fundsHedge FundA hedge fund, an alternative investment vehicle, is a partnership where investors (accredited investors or institutional investors) pool
• Take part in pre-IPO placements
• Take part in pre-ICO sales of particular ventures
• Access a community of angel investors and pursue an opportunity to become a shareholder in high-quality startups.

Importantly, financial institutions adhere to different standards for HNWI qualification, meaning they require an individual to hold a certain amount of liquid assets or depository accounts in the bank to be treated as an HNWI.

HNWIs are highly solicited by private wealth managers because the more money a person owns, the more management of capital it would be for a bank to preserve and multiply the invested money. The more work there is, the more the profit would be for the bank.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• Asset ManagementAsset ManagementAsset management refers to the process of developing, operating, maintaining, and selling assets in a cost-effective manner.
• Investment BankingInvestment BankingCFI's Investment Banking Manual. This 400+ page guide is used as a real training tool and bulge bracket global investment banks. Learn everything a new investment banking analyst or associate needs to know to get started on the job. This guide and handbook teaches accounting, Excel, financial modeling, valuation,
• Net Tangible AssetsNet Tangible AssetsNet Tangible Assets (NTA) is the value of all physical ("tangible") assets minus all liabilities in a business. In other words, NTA are the
• Taxable IncomeTaxable IncomeTaxable income refers to any individual's or business’ compensation that is used to determine tax liability. The total income amount or gross income is used as the basis to calculate how much the individual or organization owes the government for the specific tax period.