Financial Planning Ideas for High Net Worth Individuals
For any high net worth individual a financial plan is the bedrock to achieving your goals. If you have a high net worth or even a high income it is important to be aware of the many options that are available to you.
Here we will be discussing some ideas that open up to individuals once they hit a high net worth or income status. Please keep in mind these ideas should not be considered as financial advice and should only be treated as ideas for educational purposes.
Municipal Bond SMA for High Net Worth Individuals
Municipal bonds and funds are incredibly popular amongst high net worth investors. This is primarily because of their tax benefits. What most people don’t is that you can set up a Municipal Bond SMA (Separately Managed Account).
Some investors get their municipal bond exposure from purchasing a municipal bond fund. What most people don’t know is that you can actually hire a portfolio manager to manage an individual account for you rather than through a fund.
Typically a Municipal Bond SMA have minimums starting at around $100,000. This does fluctuate based on the specific investment firm you choose.
Here are some of the benefits of using a Municipal Bond SMA:
Your choice of investment grade bonds. You and the portfolio manager can work to determine the appropriate level of risk you want to take with your municipal bonds
Your choice of geography. Since municipal bonds are issued by state municipalities you and the portfolio manager can determine which states you are comfortable investing with. This can also be a critical feature depending on which state you live in.
Potential fee reduction. Municipal SMAs can potentially come with a reduction in fees in what you are currently paying for with your Municipal Bond Fund. While not always the case, funds are typically more expensive to maintain than an SMA.
The major take away here is that a Municipal SMA can potentially offer you a more customized experience than a municipal fund can provide. The portfolio manager can manage this to meet your needs rather than the needs of the mutual fund or ETF.
Equity SMA for High Net Worth Individuals
Similar to a Municipal Bond SMA, an Equity SMA is managed by a portfolio manager who focuses on stock selection rather than bonds.
This is a strategy that also offers a wide range of customization where most of the benefits you may see will be from taxes. A large issue high net worth investors can run into are capital gains that are issued out by there equity mutual fund holdings. At the end of the day mutual funds manage towards the fund not necessarily towards the individual investors. In some instances a fund could produce a short term capital gain that causes a high income earner a large tax bill.
Typically an Equity SMA minimum will start at around $50,000 depending on the specific investment firm.
Here are some benefits of using an Equity SMA:
Your choice of investment goal. You and the portfolio manager can work to determine the appropriate investment goal for the portfolio. You may be interested in a dividend paying portfolio, or you may be more interested in capital appreciation.
Your choice of geography. You and the portfolio manager can determine what countries you are comfortable investing in. You may be interested in a fully international portfolio or potentially a global portfolio that has both domestic and international stocks. In some cases you can even have an Equity SMA focused on one country.
Potential fee reduction. An Equity SMA can potentially come with a reduction in fees in what you are currently paying for with your Equity Fund. While not always the case, funds are typically more expensive to maintain than an SMA.
The major take away here is that an Equity SMA can potentially offer you a more customized experience than an equity fund can provide. The portfolio manager can manage this to meet your needs rather than the needs of the mutual fund or ETF.
Private Equity for High Net Worth Individuals
Currently you must be a qualified or accredited investor in order to invest in a private equity fund. Once you meet those requirements, you can then diversify your portfolio into private equity should you want to.
Private Equity can take on many forms. Funds can invest in early stage start ups, to late stage businesses that are cash flow producing.
A negative to private equity is that usually your money is locked up for a substantial period of time. It is important to determine an appropriate amount to allocate to investments like these as there is the possibility that you cannot get your initial investment out should you need to.
Private Equity can also have higher expense ratios than what you may be used to with a mutual fund. These funds can have a lot of internal expenses that are created. Please make sure to do your due diligence before investing.
Every investment firm has their own minimums on their funds but you can comfortably say that most fund have minimums around $100,000.
Delaware Statutory Trusts For High Net Worth Individuals
Delaware Statutory Trusts or DSTs, are more important to real estate investors. DSTs offer a way for real estate investors to 1031 into a real estate investment vehicle while deferring their capital gains.
To learn more about this process please read our article on how to 1031 into a REIT.
Want to connect?
If you are interested in learning more about the above strategies, please feel free to reach out to us here.
Disclosure
IntelliVest Wealth Management is a Registered Investment Advisor Headquartered in Spartanburg South Carolina. This is not a solicitation. Please consult with IntelliVest Wealth Management about your personal financial situation.
Disclosure
IntelliVest Wealth Management is a Registered Investment Advisor Headquartered in Spartanburg South Carolina. This is not a solicitation or financial advice. This article should only be used for educational purposes. Please consult with IntelliVest Wealth Management about your personal financial situation.
