HNIs or High Networth Individuals are smart people.
They have wealth. More importantly, they know how to make more money from their business and other income sources. But that’s not all. They also understand that they need to generate more money from their existing assets.
And it is this expertise and thought process that helped them become HNIs in the first place.
You may be curious who an HNI is.
High Networth Individual doesn’t give the exact criteria. Isn’t it?
Different people have different yardsticks for this.
Some say having a few crores investible surplus is the starting line – like having Rs 5 Crore +. Others put the number at much higher figures of Rs 20 Cr plus.
But whatever you may choose as a figure, the fact is that these people are rich. They have money and they want it to be deployed correctly and work hard for them.
And unlike small investors who initially start saving with a focus on tax saving, HNIs needs are different. They too have regular financial goals like children’s education, house purchase, travel, marriage, etc. But most often than not, they have good and regular cashflows to manage these things. They don’t need to save for such goals specifically.
Many times, HNIs don’t even have thought about any specific goals though they know what the money is required for. They look beyond the goals. So instead of saving money for retirement or children’s education, they may just simply want to preserve + grow their wealth and also want to have a strategy to efficiently deploy fresh funds coming from their income sources every now and then.
When it comes to Financial Planning For High Networth Individuals (HNI), let me tell you something.
When someone (like HNI or UHNI) already has wealth, there comes a time when the feeling of ‘I can manage it myself as I have been doing this for years’ comes.
No doubt HNIs are smart people. And they are good at what they do, i.e. earning money. But as they say, what got you here may not take you further.
So many HNIs feel that it’s good to take some advice (or second opinion) when it comes to managing personal portfolios and finances.
That brings up the important question:
Do HNIs need financial planning in India?
Do HNIs need financial advisory in India?
Do HNIs need investment advisory in India?
To be honest, if I was an HNI, I would definitely be taking financial advice. More importantly, I would be taking financial advice from someone who I am 100% sure is offering unbiased, conflict-free, and commission-free investment advice.
Being an HNI, you already do understand what happens when the conflict-of-interest angle comes into the picture. It changes how people behave and act. And if your financial advisor is giving you wrong financial advice because his hidden commission earnings depend on it, then it can be detrimental to your wealth in the long term.
Let me share a couple of examples about how and why many people get misguided by these so-called advisors who in reality are just product sellers. If you have time, do read these 3 articles:
- How Mutual Fund Distributors push you to invest in unsuitable schemes?
- How do your Bank’s Relationship Managers Fool You?
I don’t want to put HNIs in the wrong light.
But the fact is that since you have money, people will find novel ways to sell something or the other to sell you and earn from you. I am sure that every now and then, you get calls or visits from someone selling something who tries to make you feel that you deserve something special because you are rich.
It may give you a high to feel that way no doubt.
But people use this technique as bait and distraction.
The result is that you are sold some new exciting financial product which only a select few have access to. It’s only years later that you realize that it was a b***sh** product that neither was good for you nor lived up to the promises it was sold on.
Tell me, have you not seen bank managers, agents, and distributors flock to you as bees go to honey?
And that is exactly the case.
You are honey to them and they want to take honey (money). 😉
Most important is that their and your interests aren’t aligned. They want to sell you high-commission products irrespective of the fact whether that product fits in the client’s portfolio or not. And that isn’t right. But that is how the world operates. And I am sure you already know it is on top of the money hierarchy.
Just try asking them once what their income or incentive model is.
You will get your answers.
So it’s really (really) important for you to take advice from someone who doesn’t give you wrong advice to earn big hidden commissions. And the best option is to go to a Fee-Only Financial Planner or a SEBI Registered Investment Advisor. They charge a fee from you directly and work with you. They don’t earn commissions from selling products to you. So you can be sure that they will not give you the wrong financial advice.
That was about from whom should HNI take financial advice?
But many (including HNIs) would want to know why should HNIs get their financial planning done in the first place.
It is because when you undergo a financial planning exercise, the investment advisor takes a deep look at your overall finances along with the risk that your income (from various sources) and your existing assets and portfolio are exposed to. Will you be able to provide for your monthly expenses and lifestyle costs if your income was to come down temporarily? What is the probability of that happening and how can it be handled?
HNIs want to grow their wealth. But they also want to protect what they have and also want to ring-fence their lives from various risks. So if don’t done correctly, then HNI financial planning will not only make proper provisions for the major short-term goals/expenses but also build sufficient buffers for unplanned and unexpected events.
Once the risks are properly covered, then the HNI wealth preservation and growth plan will be created to invest properly. Some HNIs I have talked to feel that taking the Goal-based approach is best. But there are other HNIs who feel that managing one single portfolio is what works best for them. So no two HNIs are same. They have unique requirements and hence, may need a unique HNI investment plan for their money.
Then HNI financial planning will also analyze how health and life insurance for HNI are put in place (if any). If not, then a portfolio of insurance would be suggested to take care of various risks to life, health, and income in general.
Why insurance is important because different HNIs and HNI families are exposed to different types and degrees of risk. It is always advisable to transfer the risk to an insurance company by taking an adequate insurance cover. If it is not possible to ensure risk, then one should be ready to make provisions for it from existing assets. And once all this is done, then the HNI can rest assured to take go ahead and invest his money properly for wealth preservation and growth.
A good HNI Financial Planning exercise done by a SEBI RIA (investment advisor) will also find out whether the HNI portfolio follows proper asset allocation or not. Like most small investors, many HNI investors are also oblivious to the need for proper asset allocation and rebalancing portfolios periodically.
A good advisor will collect all the relevant information about the HNI client, his financial goals, his agenda, and money philosophy, existing assets, income sources and income patterns, expenses and their patterns, etc. He will have a detailed conversation (if need be, multiple) with them, and only after a deep analysis, will a well-thought-out HNI Financial Plan will be presented which will be used to put in place a proper Investment Strategy for the HNI Portfolio.
That is why HNIs need good financial planning.
Having wealth doesn’t mean you don’t need financial planning.
A good financial plan made for HNI would give you control and a top-view of your finances. You would then not be investing here and there randomly being ill-advised by product sellers like MF distributors, PMS managers, and insurance agents. You will know where your money is going and why is it going there. And that is what HNI financial planning offers.
And even as an HNI you feel you don’t need Financial Planning, it can still be a good idea to take Second Opinion for HNI Portfolio from SEBI RIA Investment Advisor. Atleast you will have an unbiased view of what is going right and what is going wrong in your portfolio, so you can make course corrections accordingly then.
I am a SEBI registered Investment Advisor who advises regular and HNI clients. So if you wish to discuss this with me, then feel free to contact me. You can use this form to initiate discussion.
PS – I know that you do understand that me telling you HNIs need financial planning is like a barber telling you that you need a haircut. I want you to believe that. 😉 But what I wrote is still true. Even if you decide not to get your financial planning done by me or somebody else. But if nothing else, just try asking some hard questions from those you take financial advice from.