High-net-worth individuals (HNWI), have different needs and expectations than most people when it comes to their assets and the direction of their financial future. With numerous assets, companies to run, and properties to manage, they likely don’t have time to handle the growing complexities of their finances.
High-net-worth wealth management services take this burden off their shoulders, providing opportunities to protect and grow their fortunes and giving them space to focus on managing their business and time with loved ones. Wealth advisors work closely with HNWI clients to manage and optimize investments, taxes, and estate planning strategies.
In this article, we will provide a guide to high-net-worth wealth management, including an introduction to the services a high-net-worth individual can access, and a discussion of financial planning, tax planning, and investment planning.
The three most important services HNWIs need from a wealth manager are:
- Estate planning: With significant assets and/or cash holdings, it is particularly important that you have a thorough estate plan in place. While you may have a basic will, it is best to draw up an estate plan that will stipulate exactly how assets are to be divided up and identify strategies to protect wealth for generations to come. This will ease the process of winding up your estate, help to prevent conflict among beneficiaries, and minimize an estate’s tax burden.
- Tax planning: HNWIs are expected to pay a lot of tax, but effective tax planning helps to minimize the tax burden as much as is legally possible. This is achieved through a number of tools and tactics, including trusts, estate freezes, maximizing deductions, insurance strategies, and tax-loss harvesting, etc.
- Succession planning: Wealth managers can also help business owners put a plan in place to ensure that their companies pass seamlessly into the right hands after they pass away or step aside.
As you consider your financial future, consider some of the issues we will now discuss in this article. If you would like to know more about any of them, speak to a Momentum Financial Services Inc. advisor.
Financial Planning for Business Growth
Financial planning extends beyond merely protecting assets. It can also be used to create a strategy for business growth. How does one generate growth in a business? How should growth be managed when it happens? A strong financial plan for a business will enable preparations for growth and increased profits. It will ensure that a business owner always has a detailed picture of the company’s financial position, empowering them to develop and commit to their financial goals.
You can plan short- and long-term investments, prepare for capital expenditures and expansion, and make provisions for market volatility and unexpected expenses. With a plan in place, you can prepare your business to take advantage of growth opportunities, as well as take action to minimize losses.
Strategic Tax Planning for Your Financial Future
Tax planning should form part of any successful financial plan. Strategic tax planning is intended to maximize tax efficiency and minimize tax liability. It should be an essential part of every investment or high-net-worth wealth management plan.
A strategic tax plan should include a thorough analysis of one’s financial situation and its tax implications. This breakdown should include the projected tax liability, the tools to minimize it, and the expected tax savings.
A tax strategy will involve a combination of tactics that serve to reduce tax liability and maximize net income and assets. Some of these tools include:
- Income splitting: This involves a collaborative effort among a high-net-worth family to reduce their overall tax liability at the expense of one or two of them actually paying higher taxes than they otherwise would. However, be aware of the tax on split income rules (TOSI) as they have become more restrictive in recent years.
- Maximizing Registered Retirement Savings Plan (RRSP) contributions: High income earners can manage their RRSP contributions so that their tax liability is deferred, reduced, or both. For example, they may choose to make early contributions. If they were to pay their contributions in January this year, rather than at the end of February next year, their savings would enjoy tax-deferred growth for the next 14 months. That said, RRSPs may not be a useful strategy for those with corporations or those with a lower income but large assets.
- Tax-efficient investments: These include exchange-traded funds and mutual funds), and the planned use of charitable giving to simplify tax deductions.
Contact us if you would like help planning your taxes for maximum efficiency and savings.
Understanding Investment Management for Financial Security
Tax planning is only one component of a successful plan for your financial security. Reducing the amount of money spent on taxes is important, but maximizing returns on investments through careful planning and management is even more so.
High-net-worth individuals have opportunities to protect and grow their wealth through strategic investments. With careful attention to risk, liquidity needs, taxes and cash-flow requirements, financial advisors monitor and tweak investment portfolios to ensure that their clients’ money is always working as hard as it possibly can produce growth.
Investment managers are always thinking in terms of the contrast between risk and potential gain. The general approach is to spread funds around in a diverse portfolio of investments in order to find the best possible balance between minimizing risk and maximizing growth. Investment managers thus take a diverse and holistic view of the economy and the markets, as opposed to the business owner’s more focused approach.
The successful management of a business investment portfolio – or an entrepreneur’s private portfolio, for that matter – will require these opposing worldviews to be reconciled as far as possible. When it comes to successful investment, a narrow focus, which is usually highly effective in running a business, is not the best approach. Diversification and flexibility are key.
The investment management process starts with setting goals, followed by the allocation of assets, security selection, and then periodic monitoring and rebalancing as needed.
Our investment managers can help you choose investments and manage your portfolio for maximum returns. Contact us for more information.
The Importance of Estate Planning to Secure Your Legacy
Financial planning helps you grow your wealth, and tax planning helps you to ensure that you can hold on to more of it. The next step is to streamline the transfer of your wealth to your heirs.
As you grow and protect your assets, you must also think carefully about how you wish them to be dealt with and distributed once you pass away. This is where a detailed, effective estate plan is essential.
Estate planning is vital for anybody who wishes to ensure that their loved ones are provided for according to their wishes. Although it is advisable to have an estate plan in place, regardless of one’s net worth, it is especially important for someone who owns a sizeable portfolio. The benefits of estate planning include:
- The ability to specify who your beneficiaries are and exactly what they will receive from your estate. All your loved ones are provided for and you can avoid or override any disputes.
- Money-saving possibilities: a well-designed estate plan can help to minimize your tax burden, thus ensuring that more money is passed on to your beneficiaries rather than being paid to the state.
An estate plan provides a roadmap for the distribution and finalization of an estate. Not a single part of the estate is left to chance. Clients can specify how they want each and every asset to be transferred or managed after their death. It also helps to keep their estate’s tax burden down and makes the management of an estate much easier for executors and heirs.
If you would like to know more, reach out to a Momentum Financial estate planning advisor today.
Protecting Your Wealth with Insurance Planning
Life and health insurance can both be used to provide effective wealth protection. You can also use insurance products cleverly in your investing by putting at least some of your money in insured investments such as GICs or accumulation annuities.
When it comes to life insurance, investors should consider three different kinds: permanent insurance, universal life insurance and participating life insurance. Health insurance also has a role to play.
- Permanent insurance covers a policyholder for life. It provides a death benefit and can also be used as part of tax planning.
- Universal insurance offers the benefits of permanent insurance along with the ability to build savings for tax-preferred growth.
- Participating insurance policies provide the protection offered by permanent insurance, as well as the ability to receive regular dividend payments, which can then be used to buy more coverage, reduce premiums, earn interest, or cash out to be used for other purposes, such as contributing to the purchase of new assets.
- Health insurance products ensure that personal wealth doesn’t have to be used to pay for health care. Medical costs can get extremely expensive when bad health and dread illnesses strike. Buying health insurance helps to cover those costs if you need to, while keeping assets and core wealth intact.
How Alternative Investments Help Diversify Portfolios
One way to maximize returns and safeguard assets is through diversification. One way of increasing the diversity of a portfolio is by including at least some alternative investments. Alternative investments are financial assets that do not fall into the conventional financial instrument categories (stocks, bonds, and cash).
Venture capital, hedge funds, managed futures, art, antiques, and private equity are examples of alternative investments. Many investors are choosing to put at least some of their funds into alternative investments, because they are an excellent way to diversify their portfolios – and diversification is one of the keys to investing success.
Alternative investments can offer another element of diversification of the overall financial plan than traditional financial instruments. They help to mitigate overall portfolio risk because they don’t undergo the same fluctuations and variances as other assets.
If a stock is down one-month, alternative assets, like private equity, are not likely to follow that same pattern. They may stay the same or they may rise in value, regardless of the activities of the market. Every investment portfolio should include at least some alternative assets.
Considering all of these factors, the best way to grow and protect your wealth is with the help of an experienced wealth manager. Our expertise, knowledge and experience allow us to assess your family’s needs and the skills to structure investment, tax and estate planning strategies to meet your financial objectives. We provide excellent high-net-worth wealth management services for individuals and families. Contact us to find out more about our services and what they can do for you.
