What is a High-Net-Worth Individual (HNWI)?
A high-net-worth individual (HNWI) is someone who possesses liquid assets of at least $1 million, after accounting for liabilities. This term is frequently utilized in the financial sector to earmark clients deserving of customized financial and asset management services. Liquid assets generally include cash, stocks, and other easily convertible investments.
Key Takeaways
- A high-net-worth individual holds at least $1 million in liquid financial assets.
- North America had a record 7.4 million HNWIs as of 2022.
- Ultra-high-net-worth individuals have a net worth over $30 million.
- In 2022, the global wealth of ultra-HNWIs decreased by approximately 3.7%.
Understanding High-Net-Worth Individuals
The financial industry evaluates individuals based on their net worth. Although there is no exact figure for this classification, liquid assets exceeding $1 million generally classify one as an HNWI. Liquid assets are those quickly convertible to cash without any significant loss of value.
Numerous avenues lead to high net worth: steady work and savings, smart investments, inheritance, lottery winnings, selling valuable assets or businesses, and securing settlements or life insurance payouts. Banks often offer special benefits — like reduced fees, special rates, and exclusive access to events — to customers with substantial liquid assets or deposits.
Managing substantial wealth requires effort in maintaining and preserving assets. Consequently, HNWIs often demand specialized services including tailored investment management, estate planning, and tax strategizing. They typically have access to exclusive investment vehicles like separately managed accounts, rather than conventional mutual funds.
HNWIs’ substantial resources enable them to engage in high-stakes investments such as initial public offerings (IPOs) and startups with promising financial projections.
Insights and Demographics of HNWIs
North America boasted about 7.4 million HNWIs in 2022, according to the Capgemini World Wealth Report, making it the region with the highest HNWI concentration. Following closely, the Asia-Pacific region had 7.1 million HNWIs, while Europe had about 5.6 million. Globally, HNWI populations plunged by approximately 3.3% from 2021 to 2022, with North America experiencing the most significant decrease at 6.9%.
Here’s a snapshot of HNWI wealth statistics in 2022:
| Region | HNWI Wealth | YoY Growth |
|---|---|---|
| North America | $25,632,000 | -7.4% |
| Asia-Pacific | $24,653,000 | -2.7% |
| Europe | $18,171,000 | -3.2% |
| Latin America | $9,189,000 | 2.1% |
| Middle East | $3,415,000 | 1.5% |
| Africa | $1,858,000 | 1.6% |
Various Classes within High-Net-Worth Individuals
An individual with assets less than $1 million but more than $100,000 is a sub-HNWI. Clients with up to $5 million are considered very-high-net-worth individuals (VHNWI), and those with $30 million+ are classified as ultra-high-net-worth individuals (UHNWIs).
Here are the classifications divided by wealth categories:
- Millionaires Next Door: $1M to $5M in investable wealth.
- Mid-Tier Millionaires: $5M to $30M in investable wealth.
- Ultra-HNWIs: Over $30M in investable wealth.
In 2022, the ultra-HNWI global population fell to 210,000 — a drop of 4.6%. The category of mid-tier millionaires reached 1.98 million, while the millionaires next door formed the largest group at 19.52 million.
Benefits Exclusive to HNWIs
As a high-net-worth individual, exclusive financial services are within reach. Benefits often include reduced fees, special investment opportunities, and access to events and perks unavailable to the general public.
HNWIs have the unique advantage of investing in hedge funds, private equity (PE), and venture capital (VC), which typically have entry barriers requiring substantial minimum net worth. Moreover, they have avenues for investing in real estate and alternative assets less accessible to most.
Conclusion
A high-net-worth individual (HNWI) is defined by possessing liquid assets worth at least $1 million. These individuals not only unique demand financial expertise but also receive preferential treatment in their financial dealings, thanks to the considerable effort needed to manage and preserve their asset portfolio. The United States remains a global leader for the number of HNWIs.
Whether achieved through inheritance, investments, or financial planning, joining the ranks of HNWIs brings a suite of benefits and a call for specific financial management prowess.
Related Terms: ultra-high-net-worth individuals, investable assets, private equity, liquid assets, venture capital.
References
- Capgemini. “World Wealth Report 2022”, Page 38.
- Capgemini. “UNLOCK GROWTH IN WEALTH MANAGEMENT”, Page 7.
- Capgemini. “UNLOCK GROWTH IN WEALTH MANAGEMENT”, Page 9.
- Harvard Law School Forum on Corporate Governance. “SEC’s Recent Decision Regarding Qualified Client Status”.
- AdvisoryHQ. “Average Financial Advisor Fees in 2021”.
- Caproasia. “Capgemini World Wealth Report 2023: HNW Population at 21.7 Million with $83 Trillion Global Wealth, 210,000 UHNWs Representing 1% of HNW Population & 34% of HNW Wealth, Top 2 Goals are Wealth Preservation & Wealth Growth”.
- Capgemini. “North America Retains Top Spot for High-Net-Worth Population and Wealth: World Wealth Report 2022”, Page 1.
- Capgemini. “UNLOCK GROWTH IN WEALTH MANAGEMENT”, Page 9.
- Board of Governors of the Federal Reserve System. “What is the Difference Between a Bank’s Liquidity and Its Capital?”
- Capgemini. “UNLOCK GROWTH IN WEALTH MANAGEMENT”, Page 6.
