A high-net-worth individual, or HNWI, might be defined differently at certain financial institutions. But no matter what, a high-net-worth individual is someone who has accumulated a large amount of investable assets.
Typically, a high-net-worth individual will have a net worth of at least $1 million. Usually liquid or investable assets are what counts toward being considered a high-net-worth individual.
Often, high-net-worth individuals will bank at a private bank or with a wealth management firm.
At both of these types of institutions, high-net-worth individuals may be offered additional services beyond banking and investing. These can include trust services, estate planning and other services, often using a team approach.
How net worth is calculated
A person’s net worth is determined by adding all of the person’s assets and then subtracting any liabilities.
Rick Zimmerman, SVP, private banking and commercial lending at Capitol Bank in Madison, Wisconsin says assets include:
- Deposits in checking accounts, savings accounts, money market accounts
- Any real estate that you own (primary residence or an investment property)
- Retirement accounts
- Any businesses that 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?
Capitol Bank uses a three-pillar approach to determine 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, or they might not need to meet two of the requirements, and still be considered a high-net-worth individual.
“You might just have those investable assets,” Zimmerman says.
Zimmerman says liquidity is considered.
“That would be really assets outside of any retirement accounts,” Zimmerman says.
At Capitol Bank, you’d need a net worth of $10 million to $15 million to be considered an ultra-high-net-worth individual, Zimmerman says.
One financial institution might define high-net-worth individuals differently than another.
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 circumstances, it could almost happen overnight.
- 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.