A high-net-worth individual (HNWI) is a person with a high net worth. In the western and primarily American private banking business, these individuals typically are defined as having investable finance (financial assets not including primary residence) in excess of US$1 million. As explained below, the U.S. Securities and Exchange Commission has promulgated a different definition of "high net worth individual" for regulatory purposes.
World’s Wealth Report 2009
The Merrill Lynch - Capgemini World’s Wealth Report 2009 defines HNWIs as those who hold at least US$1 million in financial assets and ultra-HNWIs as those who hold at least US$30 million in financial assets, with both excluding collectibles, consumables, consumer durables and primary residences. The report states that in 2008 there were 8.6 million HNWIs worldwide, a decline of 14.9% from 2007. The total HNWI wealth worldwide totaled US$32.8 trillion, a 19.5% decrease from 2007. The ultra-HNWIs experienced the greater loss, losing 24.6% in population size and 23.9% in accumulated wealth. The report revised its 2007 projections that HNWI financial wealth would reach US$59.1 trillion by 2012 and revised this downward to a 2013 HNWI wealth valued at $48.5 trillion advancing at an annual rate of 8.1%.
The "World Wealth Report" published by Merrill Lynch and Capgemini has estimated the number and combined investable wealth of high-net-worth individuals as follows.
||This article may be confusing or unclear to readers. (April 2012)|
|Year||Number of HNWIs
|In 2012 USD
Ranking of High net worth individuals
Ultra high net worth individuals (UHNWIs) are individuals or families who have, by one definition, at least US$30 million in investable assets, or with a disposable income of more than US$20 million.
The exact dividing lines depend on how a bank wishes to segment its market; for example, the term "very high net worth individuals" can refer to those with assets between $5 million and $50 million, with ultra high net worth individuals only those with above $50 million.
According to Investopedia, there are distinct classifications of HNWI. An investor with less than $1 million but more than $100,000 is considered to be "affluent", or perhaps even "sub-HNWI". The upper end of HNWI is around $5 million, at which point the client is then referred to as "very HNWI". More than $50 million in wealth classifies a person as "ultra HNWI".
|Sub-HNWI / affluent||100,000 - 1,000,000|
|HNWI||1,000,000 - 5,000,000|
|Very HNWI||5,000,000 - 30,000,000|
|Ultra HNWI||30,000,000 and above|
Banking and finance
Most global banks, such as Credit Suisse, Barclays, BNP Paribas, Citibank, Deutsche Bank, HSBC, JPMorgan Chase and UBS, have a separate business unit with designated teams consisting of client advisors and product specialists exclusively for UHNWI. Because of their extreme high net worth and the way their assets were generated[further explanation needed], these clients are often considered to have characteristics similar to institutional investors.
Brands in various sectors, such as Bentley, Maybach, and Rolls-Royce in motoring, actively target UHNWI and HNWI to sell their products. Figures gathered by Rolls-Royce suggest there are 80,000 people around the world with disposable income of more than $20 million. They have, on average, eight cars and three or four homes. Three-quarters own a jet aircraft and most have a yacht.
The U.S. Securities and Exchange Commission requires all SEC-registered investment advisers to periodically file a report known as Form ADV. Among other things, Form ADV requires each investment adviser to state how many of his clients are "high net worth individuals." The Form ADV Glossary of Terms explains that a "high net worth individual" is an individual with at least $1,000,000 managed by the reporting investment adviser, or whose net worth the investment adviser reasonably believes exceeds $2,000,000 (or who is a "qualified purchaser" as defined in section 2(a)(51)(A) of the Investment Company Act of 1940). The net worth of an individual for SEC purposes may include assets held jointly with his or her spouse. Unlike the definitions used in the financial and banking trade, the SEC's definition of HNWI would include the value of a person's verifiable non-financial assets, such as a primary residence or art collection.
Academic studies of asset management trends
The Wharton Global Family Alliance whitepaper was released in 2008 to study the investment strategies of single family offices in the United States and in Europe. The research was segregated into sub-groups representing those with less than $1 billion in assets and those with assets above $1 billion. The study found that U.S. families reported a more aggressive attitude toward investment objectives than their counterparts in Europe. One recommendation of the WGFA study advised the advisors and family offices serving this niche to avoid complexity in the structure of portfolios.
The authors cite that the more complex the portfolio and number of holdings, the more difficult the job of performing adequate governance, reporting, and education. The Institute for Private Investors, a peer networking organization for wealthy families and their advisors, suggested a similar theme to its membership in 2008 with a conference themed, "The Return to Simplicity". Kotak Wealth Management and CRISIL Research, published a report on the Ultra High Net Worth Individuals in India titled "Top of the Pyramid Report". Author and portfolio manager Niall Gannon suggested in Investing Strategies for the High Net Worth Investor: Maximize Returns on Taxable Portfolios that asset management for the ultra high net worth individual must be approached from a perspective which acknowledges the role of taxes in reducing portfolio returns. His research studied the S&P 500 index on an after-tax basis and found the return to be 6.63% after paying taxes at the top prevailing federal tax rate and a constant average of 6% for state taxes.
The study covered the period from January 1, 1957- December 31, 2010. Additional results from Gannon's research found that a portfolio of municipal bonds out-performed the re-invested S&P 500 index in 17% of the rolling 20 year periods since the inception of the index. Gannon rejects the use of historical returns for future asset allocation modeling for high net worth investors. He argues that an observation of stock portfolio earnings yields (the inverse of the p/e ratio) are more indicative of the future return potential of the portfolio when modeled with the impact of taxation on performance.
- "Capgemini 2007 World Wealth Report" (PDF). 2006-06-12. Retrieved 2007-07-08. "World Wealth Grows to $33.3 trillion Says Merrill Lynch"
- For A Few Dollars More, by Nivedita Chakravartty, The Times of India, 18 Jan 2007
- CapGemini. "2009 World Wealth Report". Thought Leadership.
- Using http://www.bls.gov/data/inflation_calculator.htm
- Rich spurn ultra-luxury cars, The Sunday Times (UK), 5 Nov 2006
- Banking for Family Busi ness: A New Challenge for Wealth Management, by Stefano Caselli, Stefano Gatti, Springer, 2005, ISBN 3-540-22798-9
- Investopedia Definition of 'High Net Worth Individual - HNWI'
- SEC Form ADV
- Wharton Global Family Alliance. "Benchmarking the Single Family Office: Identifying the Performance Drivers".
- Institute for Private Investors. .
- , McGraw-Hill, 2009, ISBN 978-0-07-162820-4 Missing or empty
- Rivkin, Annabel (2006-12-12). "How I make the rich richer". London: The Times. Retrieved 2007-07-08.