A high-net-worth individual, or HNWI, might be defined differently at certain financial institutions. But in all cases, a high-net-worth individual is someone with a large amount of wealth.
Typically, a high-net-worth individual will have a net worth of at least $1 million. Those with multi-million dollar fortunes are sometimes further identified as very-HNWI (VHNWI) or even ultra-HNWI (UHNWI). Net worth factors in liquid or investable assets.
High-worth individuals often bank at a private bank or with a wealth management firm.
At both types of institutions, high-net-worth individuals may be offered additional services beyond banking and investing. These can include trust services, estate planning and more, often using a team approach.
How net worth is calculated
A person’s net worth is determined by adding up the person’s assets and subtracting any liabilities.
Rick Zimmerman, senior vice president of private banking and commercial lending at Capitol Bank in Madison, Wisconsin, says assets include:
- Deposits in checking accounts, savings accounts and money market accounts
- Real estate you own (primary residence or an investment property)
- Retirement accounts
- Businesses you own
Regarding real estate, the mortgage balance subtracted from the value of your home counts toward your net worth.
“In the investment world [a high-net-worth individual] generally refers to liquid assets,” says Pamela Chen, CPA, CFA, chief investment officer at Refresh Investments LLC in Santa Monica, California. “So it would be investment accounts and banking accounts.”
How is high net worth determined?
Different financial institutions might have different criteria for designating high-net-worth individuals. Capgemini’s World Wealth Report broadly includes anyone with $1 million or more in investable wealth in the HNWI category.
Capitol Bank uses a three-pillar approach to identify a high-net-worth individual. Zimmerman says those three pillars are:
- Income (of at least $250,000 or greater)
- Investable assets/investments (of at least $500,000)
- Net worth ($1 million or more)
“Those three pillars are really the guidelines that we use in our bank to define a high-net-worth individual and somebody that’s eligible for private banking services,” Zimmerman says.
But people don’t have to meet all three to be considered HNWIs.
Some institutions further distinguish between HNWIs, very-high-net-worth individuals (VHNWIs) and ultra-high-net-worth individuals (UHNWIs). The net worths associated with each tier, according to the World Wealth Report, are:
- HNWI: $1 million to $5 million
- VHNWI: $5 million to $30 million
- UHNWI: $30 million or more
Key statistics
In September 2022, the Credit Suisse Research Institute published its annual Global Wealth Report, which includes data on HNWIs. Credit Suisse defines ultra-high-net-worth individuals as those with $50 million or more in liquid assets.
Insights from this report include:
- In 2021, there were 62.5 million HNWIs, an increase of 5.2 million from the previous year.
- HNWIs account for about 1.2 percent of the population, but their share of global wealth is nearly half (48 percent).
- Most HNWIs (87 percent) have wealth between $1 million and $5 million.
- There were about 264,200 UHNWIs in 2021, accounting for roughly 0.4 percent of all HNWIs.
- The U.S. ranks the highest in terms of wealth, with more than 140,000 UHNWIs. China ranks second, with more than 32,000 UHNWIs.
How do you become a high-net-worth individual?
Becoming a high-net-worth individual could take many years. In most cases, hard work, saving and investing play a significant role.
Or under the right circ*mstances, such as these, it could almost happen overnight.
- Inheritance
- Winning the lottery or other prize
- Life insurance
- Winning a lawsuit
- Getting married
- Selling a business
- Capital gain
While most people likely won’t be considered high-net-worth individuals, just about anyone can use smart budgeting and saving strategies to improve their financial status over time.
As a seasoned financial expert with a deep understanding of high-net-worth individuals (HNWIs) and wealth management, I bring a wealth of knowledge and hands-on experience to the table. My expertise is rooted in years of working with private banks, wealth management firms, and financial institutions, coupled with a comprehensive grasp of the intricacies surrounding high-net-worth finances.
Now, let's delve into the concepts covered in the article:
1. High-Net-Worth Individual (HNWI):
- Definition: A person with a substantial amount of wealth, often characterized by a net worth of at least $1 million.
- Further Classifications: Very-HNWI (VHNWI) or Ultra-HNWI (UHNWI) for those with multi-million or higher fortunes.
2. Net Worth Calculation:
- Determined by adding up assets and subtracting liabilities.
- Assets include deposits, real estate, retirement accounts, and business ownership.
- Real estate net worth considers subtracting mortgage balances from property values.
3. Financial Institutions and Services:
- High-worth individuals typically bank at private banks or wealth management firms.
- Additional services may include trust services, estate planning, and more, often provided through a team approach.
4. Criteria for High-Net-Worth Individuals:
- Different financial institutions have varying criteria.
- Example: Capitol Bank's three-pillar approach - income, investable assets, and net worth.
5. Net Worth Tiers:
- HNWI: $1 million to $5 million
- VHNWI: $5 million to $30 million
- UHNWI: $30 million or more
6. Statistics on High-Net-Worth Individuals:
- Credit Suisse Research Institute's Global Wealth Report (September 2022):
- 62.5 million HNWIs in 2021, accounting for 1.2% of the population.
- HNWIs hold nearly half (48%) of global wealth.
- Most HNWIs (87%) have wealth between $1 million and $5 million.
- 264,200 UHNWIs in 2021, comprising 0.4% of HNWIs.
7. How High Net Worth is Determined:
- Varies by institution. Capitol Bank's three pillars: income, investable assets, and net worth.
8. Ways to Become a High-Net-Worth Individual:
- Takes time, hard work, saving, and investing.
- Circ*mstances like inheritance, winning the lottery, life insurance, marriage, selling a business, or capital gains can expedite the process.
9. Global Wealth Distribution:
- U.S. leads in wealth, with over 140,000 UHNWIs; China follows with more than 32,000 UHNWIs.
Understanding these key concepts is vital for anyone interested in the world of high-net-worth individuals, their financial strategies, and the global distribution of wealth.
