High-Net-Worth vs. Ultra-High-Net-Worth

Wealthy people often are divided into two categories, high-net-worth individuals (HNWIS) who have at least $1 million in liquid assets and ultra-high-net-worth individuals (UHNWIS) with $30 million and up. The definitions matter to the financial services industry, which targets different offerings to members of each group. Depending on which category they fall into, wealthy individuals need and have access to varying types of investment products and financial services. Let’s compare the key differences between both.

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HNWI Basics

High net worth individuals (HNWIs) are generally defined as individuals who have at least $1 million in liquid assets. This means the person has that minimum amount combined in checking accounts, savings accounts, money market accounts, stocks, bonds and other highly liquid assets.

HNWI definitions don’t typically include less-liquid assets such as real estate, land and collectibles. And the liquid asset minimum has to be reached after deducting debt, so someone with $1 million in cash and securities and $500,000 in debt would not typically qualify.

While the definition the financial services industry uses is not official and has no legal weight, the Securities and Exchange Commission has a definition that is official. The SEC uses the term “accredited investor” to describe individuals that meet specific requirements including at least one of the following:

• Possess professional certifications, designations or credentials demonstrating investment knowledge

• Have $1 million net worth, not including the value of the individual’s, primary residence

• Generate earned income of $200,000 each of the last two years. If combined with a spouse, the floor is $300,000.

UHNWI Basics

A UHNWI generally needs at least $30 million in net investable assets. This general definition is used by wealth managers, financial advisors and others in financial services to identify the richest segment of potential clients. Some definitions consider $10 million and up to be the domain of UHNWI. There’s no upper limit, so billionaires are categorized alongside these relatively less affluent worth tens of millions of dollars.

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Government regulators don’t use a UHNWI definition. A member of this group is treated like any other HNWI or accredited investor and has access to any legal investment opportunity.

Why the Difference Matters

Achieving the status of an HNWI makes a difference to the types of investments that are available. The SEC will not allow people who aren’t accredited investors to put their money into private equity funds, hedge funds and some other vehicles that are considered too complex or risky for less sophisticated and well-heeled investors. However, once you have reached the ranks of HNWI, it makes no difference to the SEC if your wealth continues to grow to UHNWI status.

Financial services firms also target certain offerings to potential customers by wealth. For instance, HNWI customers may be able to get high-end credit cards such as the American Express Centurion Card. And the financial services industry pays still more-specialized attention to the UHNWI group.

The difference between HNWI and UHNWI is most important to wealth managers, financial advisors, estate attorneys and others who serve the very affluent. Some restrict their practices to either HNWI or UHNWI clients, so they can limit the number of clients they serve and focus on the specialized services each group needs.

High Net Worth Individual Needs

An HNWI market is likely to be different from an UHNWI when it comes to investing, consuming, financial planning, tax planning and estate planning. For instance, a member of the HNWI group generally puts money into mainstream investments including domestic stocks and bonds, real estate and bank certificates of deposit.

They are avid consumers of luxury goods such as luxury cars. As regards estate planning, they may employ trusts to simplify transfers of wealth and support charitable objectives.

These individuals usually employ a single financial advisor to assist them in creating a financial plan and working with life insurance agents, securities brokers and other professionals to executive their financial vision.

Ultra-High Net Worth Individual Needs

People in the UHNWI segment often have a team of financial planners and wealth managers as well as legal and tax experts to help with their more expansive and complex requirements. They may have a family office that operates like a private asset management firm while also addressing financial matters tied to lifestyle concerns like education, travel and art collections.

They invest in more sophisticated, complex and risky investments, including private equity, hedge funds, precious metals, world markets, collectibles, and cryptocurrencies. Their consumption may lean toward experiences rather than possessions, and they are more likely to devote significant attention and resources to supporting charitable causes.

Taxes are particular concern for an UHNWI, in part because their assets exceed the federal estate tax exemption, set for 2022 at $12.06 million for a couple. Only the wealthier HNWI is exposed to this tax. To manage inheritance taxes, the UHNWI is more likely to use private foundations, family limited partnerships and similar estate planning tools.

Bottom Line

The wealthy aren’t just unlike the rest of us; they also differ among themselves. High Net Worth Individuals (HNWI) worth more than $1 million tend to have individual financial planners helping them put their money into mainstream investments, while Ultra High Net Worth Individuals (UHNWI) have teams of experts to direct investments in private equity, hedge funds and other risky and sophisticated investments. Tax planning, investment access and consumption patterns also vary among these classes of wealthy individuals

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