High net worth individual is a classification used in the financial industry. The exact figure that elevates someone into the high net worth individual category varies by age and location, but the designation often refers to someone with a net worth of at least $1 million.
This classification begins to have significant implications when individuals attempt to receive financial planning services or banking services. Financial advisors have historically used the label to describe their target client base, and banks may offer different services to individuals holding larger asset amounts.
Today, experts say many financial advisors still set asset minimums for new clients and offer different services to high net worth individuals. But this label may be falling out of use among some modern financial professionals.
Karen E. Van Voorhis, director of financial planning at Daniel J. Galli & Associates in Massachusetts, says that although her firm uses a traditional assets under management price structure that charges clients a percentage of their assets alongside a fee-based price structure, clients aren’t traditionally categorized.
“We don’t use the term high net worth at all,” she wrote in an email. “We talk with prospects about how much ‘complexity’ they have or not. Now that I think about it, it’s been years since I’ve referred to any clients in that way, either internally or externally.”
The movement among financial advisors away from an asset-focused pricing model – referred to as assets under management – and toward a fee-only model that uses a subscription model to charge clients a flat monthly or annual fee for advising services has been gaining momentum in recent years.
Geoffrey Brown, chief executive officer of the National Association of Personal Financial Advisors, which is composed of fee-only financial advisors, says his organization seeks to remove barriers like that created by the high net worth individual classification.
“Just based on our growth, you can draw the conclusion that there is a trend moving towards strictly fee-only or a fee and commission model. Whereas a number of years ago, it was either a fee or commission, with commission being the predominant model for consumers to be charged."
The high net worth individual classification becomes more complex when various financial institutions define net worth differently. Experts say in most cases, to be considered a high net worth individual, a person’s liquid assets must exceed certain standards, meaning property often isn't counted toward a person's categorization as high net worth.
There are additional levels of classification financial institutions may use, such as very high net worth individuals, who generally have a net worth of at least $5 million, and ultra high net worth individuals, who have a net worth of at least $30 million.
“No one actually identifies themselves as high net worth, whether they have $1 million or $8 million, and now there is a changing of the guard, in my opinion,” says Brent Weiss, certified financial planner and founder of Facet Wealth. “A lot of firms will tell you they have an asset minimum of $1 million – high net worth clients – but the vast majority of advisors don’t actually stick to that … But the next generation of financial advice firms are looking beyond investments, realizing that most people need help with everyday financial decisions like budgeting, managing debt, insurance and estate planning.”
Financial advisors may use a variety of price models like the fee-only model, the assets under management model, a fee-based hybrid model or a commission model, each of which may include client asset minimums, depending on the firm. If you’re seeking financial planning services, look out for phrases like high net worth individuals or ultra high net worth individuals on company websites and ask what it means for your particular situation. Every financial advisor is different, but even those whose target clients are high net worth individuals may be able to help individuals who don't fall into that category.
“I am a big proponent of understanding exactly how any financial advisor is paid,” says Garrett Prom, a certified financial planner and founder of Prominent Financial Planning in Austin, Texas. “Understanding potential conflicts of interest associated with whatever that model looks like. The AUM model is, in my opinion, better than the sales model, but it is still fraught with conflicts of interest.”
