Why Some High Net Worth Individuals Tend To Be More Frugal?

The search for happiness is something that everyone works hard to achieve, but what that actually looks like depends on who you ask. Some pe...

The search for happiness is something that everyone works hard to achieve, but what that actually looks like depends on who you ask. Some people will say health is happiness, others will name family, while others still, will list wealth as their definition of happiness. A survey done by Trust Insights on Wealth and Worth in 2015 identified that the wealthy consider those three assets as the markers of a life well-lived. It’s no surprise then, that high net worth individuals (HNWI) look for a way to invest their wealth in a way that’ll allow them to live a full life. High net worth individuals often have over one million dollars in liquid assets to invest, and they rely on financial advisers to help them get a handle on their asset management.

TWO SIDES OF THE COIN

How HNWIs go about getting their advice and who they ask, also depends on what they plan to achieve with their investments. There are two ways they can go about it – consult with fee-based financial advisers or commission-based financial advisers.  It’s said that fee-based investment advisers offer reduced conflicts of interest, efficient portfolio management, and savings on fees. This is a huge plus for investors since they don’t need to worry about whether or not the advice they’re receiving is tainted by their adviser's drive to earn a bigger commission. 

Commission-based financial advisers are typically loaded with conflicts of interest with their clients. This is due to the nature of the business - the more their clients trade, the more commissions the advisers earn. Not only is that a dangerous mix for business, but it also leaves the investor open to other fees that come with trading. One of those fees comes from funds with front-end loads or rear-loads. They are deducted from the investment amount and cut into its possible return.

RISKY BUSINESS

HNWI men and women care about growing their investments, but not if it means taking big risks. While four in 10 investors have moved more of their investments into cash in anticipation of the ever rising interest rates, only 34% of them are talking about it with a professional adviser. This scenario can be catastrophic for investors who have a lot to lose, but not a lot of time to think about what they should do. Adding to this nightmare scenario for HNWI, only about one-third are talking with an adviser about how to achieve goals they consider to be important. These include identifying family needs and planning for increased wealth over time. 

WHEN OPPORTUNITY KNOCKS

For financial advisers who wish to cater to the exceptionally wealthy, aligning hobbies and networking with like-minded prospects is key.  Another point to keep in mind is that HNWIs have more complex financial situations than the average Joe. This can present itself in the form of asset management that is focused on reducing tax liabilities. The younger generation is focused on work and financial security, so having these delicate and complex points on your planning strategy can be the difference between getting their business and leaving money on the table.


Your portfolio and services should reflect the needs that HNWIs have, even if they’re unaware that they need these services. Staying in touch with the right people is also a key strategy, as well as making sure that you share your information with any potential customer. You might also find it helpful to connect with local CPAs and other individuals who do business with the well-off crowd. Throughout the duration of your practice, it’s recommended that you attend local functions where you can meet and network with clients as well as other advisers.

FAMILY MATTERS

A survey done by US Trust shows that three in four wealthy parents find it  important to leave an inheritance to their children, but only one in five feel strongly that their children will be able to deal with this new-found wealth. Almost two-thirds of parents have revealed little information about the family’s wealth to their children. They do this in order to not affect their work ethic and family privacy, as it is a great responsibility to deal with, which is why most consult with a wealth management adviser. While 54% of the wealthy believe their family would benefit from developing a set of principles to guide the purpose of their wealth, only one in 10 has actually followed through with setting up this guide. 

Another interesting note is that nine in 10 HNWIs are willing to spend more money on their health. Another 31% over age 70 say they would spend any amount of their wealth if it meant that they’d be guaranteed to have good health. Despite these numbers, half of them have not yet planned for an unexpected health issue which is why it’s imperative to any “financial adviser to offer their services to the affluent crowd” says Freddy Martinez, Founder of Forem Investments, a Wealth Management Miami Firm.

Author Bio: 

Freddy Martinez is the Founder of Forem Investments, a Wealth Management/Asset Management Boutique Firm in Miami Florida. He is also the founder of Forem.IO, a robo-advisory company that helps customers invest with the help of artificial intelligence.

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