What Is a High-Net-Worth Individual?

What do you think of when it comes to being rich? For many, what comes to mind are luxury items, lavish homes, or, most notably, the ability to do what you want whenever you want. But while these are signs of a wealthy person, those in the financial industry use specific benchmarks to define what constitutes a high-net-worth individual.

Knowing whether you fit into the high-net-worth category is crucial because it may open you up to a whole host of challenges and, of course, benefits. In this article, we’ll explain the criteria that would classify one as high-net-worth and what implications come along with the status. Additionally, we’ll break down the different problems that may follow wealth and how a financial advisor can help solve them.

High-Net-Worth Individual Definition

In finance, advisors and professionals regard individuals with substantial wealth as high-net-worth individuals (HNWIs). To fall into this category, one must typically fit specific net worth criteria regarding their liquid assets. In other words, once one’s liquid assets reach a certain threshold, they are considered an HNWI.

According to Anthony DeLuca, CFP^®, CDFA^®, Senior Financial Advisor at Delta Advisory Group, “anyone who amasses a million dollars in liquid assets” is an HNWI. Liquid assets are those that can be “readily utilized” or easily converted into cash, such as:

• Cash and cash equivalents
• Stocks
• Bonds
• Mutual funds
• Exchange-traded funds (ETFs)
• Treasury bills
• Certificates of deposits (CDs)

Non-liquid assets, such as real estate or collectibles, don’t typically count toward the high-net-worth threshold. Real estate does, however, contribute to your overall net worth. This is because the definition of the metric is based on what you own vs. what you owe.

One may achieve a high net worth through many different paths. Some may work consistently for years, saving and investing along the way. Others may own a business that can both increase their income and generate value through ownership. And, in some cases, it’s possible to experience a significant windfall, such as from the sale of a business, receiving an inheritance, or winning the lottery.

Holding the HNWI status is important because it has implications for the client and financial advisor. Investment advisor firms must typically report the number of HNWI clients they serve to the U.S. Securities and Exchange Commission (SEC). Conversely, clients face new obstacles and benefits to address, which we’ll touch upon further in this article.

Ultra-High-Net Worth Individuals

Another benchmark in finance is when one becomes an ultra-high-net-worth individual (UHNWI). To reach this level, one must typically have $30 million or more in investable assets. There are also those with a net worth of over $1 billion who face additional problems and scrutiny for achieving the veritable billionaire status.

UHNWIs tend to have unique needs that require more intensive financial services. As a result, some who fit into this category resort to establishing or hiring family offices, which serve as a means to receive comprehensive wealth management solutions.

How to Calculate Your Net Worth

Calculating your net worth is a simple exercise. To do so, you must tally up your assets and subtract your liabilities from them. However, to determine whether you’re an HNWI, you should simply factor in your liquid or investable assets. As mentioned above, this refers to cash or anything that can easily and quickly be liquidated.

As mentioned, the first step to calculate your net worth is by adding up your liquid or investable assets. This includes cash, such as funds in checking or savings accounts, as well as near-liquid securities, like stocks, bonds, mutual funds, or ETFs.

Then, you must add up any liabilities that take away from your net worth. These refer to any debt you have, such as from:

• Credit cards
• Car loans
• Student loans
• Mortgage

Once you have both totals, it’s time to subtract your liabilities from your assets. The number you get is your net worth. And, if the amount is greater than or equal to $1 million, you are an HNWI.

Benefits of Being a High-Net-Worth Individual

Once you attain HNWI status, you stand to realize several benefits. This is especially as it relates to dealing with financial institutions or banks. At your level, you may receive preferential treatment to ensure your needs are dealt with swiftly.

DeLuca explains that “banking and financial services can be used at reduced fees.” Additionally, he points out that yet another “huge advantage is that the world of Private Placements becomes more accessible to these individuals.” This means that, as an HNWI or UHNWI, you “generally meet the definition of an accredited investor,” allowing you to “deal with funds that are away from the stock market,” such as hedge funds or private real estate projects.

Challenges Wealthy Individuals Face

Having more money affords you access to new and unique opportunities; however, this also means more complex challenges and needs may arise. At this level, it becomes paramount that you do what you can to preserve your wealth, while also safely continuing to build it. This typically means minimizing tax liability and risky investments as much as possible.

One of the challenges of being wealthy is maintaining the “delicate balance between distributing your assets efficiently to enjoy retirement with the pitfalls of overspending,” says DeLuca. He also identifies being in a “higher tax bracket” as a primary obstacle for HNWIs. A solution to these issues, he explains, is “the utilization of deferred annuities before and into retirement. They allow an HNW individual to defer taxes, protect against inflation without too much risk, and distribute their assets appropriately.”

Being an HNWI may also expose your estate and its beneficiaries to the estate tax. As of 2024, an estate worth $13.61 million or more must pay federal estate tax. Thus, if you fall into this category, you “need to plan ahead and distribute [your] assets before you pass,” recommends DeLuca.

How Financial Advisors Manage Wealth

Because a high net worth means having to tackle specialized obstacles, it’s wise to work with a financial advisor to ensure your needs are met. As DeLuca describes, an “HNW client requires increased monitoring of [their] finances.” Without help, this can feel like a full-time job or leave your net worth going backward.

As an HNWI, you may benefit from hiring a wealth management firm, which offers a comprehensive set of solutions tailored to your needs and goals. These companies offer a wide range of services, including:

• Financial planning
• Estate planning
• Investment management
• Tax planning and accounting
• Risk management

It’s important to understand the qualifications of a wealth manager or advisor before hiring them. However, when it comes to professionals who specialize in serving HNWIs, there are several different credentials you should look out for, including:

• Certified Financial Planner (CFP). CFPs specialize in helping you build a comprehensive financial plan. To earn this designation, one must pass rigorous education and examination requirements.
• Chartered Financial Analyst (CFA). One of the most prestigious designations, these professionals commonly work with institutional or accredited investors. Often, they assist with investment and portfolio management.
• Chartered Financial Consultant (ChFC). Like a CFP, ChFCs are experts in financial planning. These professionals receive their designation from The American College of Financial Services and adhere to strict ethical standards, such as the fiduciary duty.
• Chartered Alternative Investment Analyst (CAIA). Once you become an HNWI, you may pursue alternative investments, such as hedge funds or private equity. CAIAs are experts in this form of investing and can help you plan and manage these types of assets.
• Certified Private Wealth Advisor (CPWA). HNWIs often have more complex and diverse needs than average investors. Professionals with the CPWA title have the expertise to work with wealthy clients and assist them with portfolio management and estate planning, among other tasks.

When you venture out to find a financial advisor, you’ll likely also want to know that they follow a fiduciary duty. You can use FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure (IAPD) to look up an individual or firm. From there, you’ll be able to assess their reputation and status as a registered investment advisor (RIA) or broker-dealer.

Frequently Asked Questions

What is considered high-net-worth?

For an individual to fit into the high-net-worth category, the rule of thumb is that they must have at least $1 million in liquid assets. This excludes illiquid assets, like real estate or collectibles, which can’t be easily sold.

Does my net worth include my 401(k)?

When you generally refer to your net worth, your 401(k) should contribute to your assets. However, for an individual to be considered high-net-worth, you must only factor in liquid or near-liquid assets. For this reason, you should exclude retirement accounts, such as a 401(k) or Roth IRA, from this context.

What percentage of Americans have a high net worth?

Per a 2021 study by Statista on the number of HNWIs in the U.S., about 7.4 million people in the country fit the category in that year, which accounts for approximately 2% of the population. This number was up from 6.58 million in 2020.