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Wednesday, February 21, 2024

What is a high net worth individual (HNWI)?

What is a high net worth individual (HNWI)? 

06.05.2023

A high-net-worth individual is someone who has a certain level of net worth, which is measured by subtracting your total liabilities from your assets.

You may have heard the term high-net-worth individual, or HNWI.

In this article, we will:

  • Define a high-net-worth individual
  • Explain how HNWIs are determined
  • Give personal finance tips on how to become an HNWI

Defining HNWI

As the name implies, a HNWI is someone who has a minimum level of net worth. Net worth is measured by subtracting all a person’s liabilities (or debts) from all of their assets, or things owned.

The term HNWI is used mainly in the financial services industry so financial service providers can provide their HNWI clients with a higher level of exclusive services and benefits.

The closest thing to a standardized definition of an HNWI comes from the Securities and Exchange Commission (SEC), which defines an HNWI as someone with a net worth of at least $2.2 million, or $1.1 million in assets managed by an advisor.

These assets include cash contained in checking, savings or money market accounts; stocks and bonds; and shares of mutual funds and exchange traded funds (ETFs). They typically don’t include real estate and land, such as a primary residence, since these can’t easily be converted to cash.

Accredited investors and HNWI levels

Financial advisors must report to the SEC annually how many clients they have who meet the SEC’s HNWI definition. In addition, the SEC has a separate category of HNWIs who are referred to as “accredited investors.” The criteria for this designation is having an annual income of at least $200,000 (or $300,000 for married couples) each of the past two years or a personal net worth of at least $1 million, excluding a primary residence.

In general, an individual must meet the definition of accredited investor to invest in special securities like hedge funds and private equity funds.

In addition to the HNWI designation, there are designations for a very high-net-worth individual, which requires at least $5 million in liquid assets, and an ultra high-net-worth individual, which requires at least $30 million in liquid assets.

HNWI statistics

Following are some interesting statistics about HNWIs:

  • The United States is home to the most HNWIs in the world according to the Capgemini Worth Wealth Report. Nearly 64% of all HNWIs in the world live in the U.S., Japan, Germany and China combined.1
  • 11.6 million U.S. households met the definition of HNWI in 2020 according to Spectrem Group, up 5.5% over 2019.2
  • Almost 2 million U.S. households met the definition of very high-net-worth individual in 2020 according to Spectrem Group.3

The benefits of being an HNWI

Similar to airline frequent flyers, HNWIs enjoy numerous perks. For starters, HNWIs usually receive customized, “white glove” service and treatment from financial services providers. This might include access to a dedicated wealth advisor and special services like trust and estate planning, invitations to special conferences and events, reduced fees on financial services, and special access to services and advisors during evening and weekend hours.

In addition, HNWIs may be allowed to participate in certain investments that aren’t available to ordinary investors — most notably hedge funds and private equity funds, as mentioned above. They might also have the opportunity to get in on the ground floor of initial public offerings, or IPOs.

How to become an HNWI

For most people, becoming an HNWI requires financial discipline over a long period of time. This includes diligent saving, successful investing, and responsible use and management of personal debt.

One way to start out on the road to becoming an HNWI is to start saving a certain percentage of your income each pay period. As your income rises, you can then increase the percentage and amount of your savings.

The sooner you get started saving and investing, the longer you have to take advantage of compounding. With compounding, money is earned not only on the amount of the initial investment, but also on the money that the investment earns. This can go a long way toward potentially growing your net worth over the long term.

Also strive to keep your debt under control — especially high-interest consumer debt like credit cards. Every dollar that goes toward paying down debt is a dollar that isn’t being saved or invested in order to grow your net worth.

Next steps for you

To start tracking your net worth, you can use Empower's free online financial tools to:

  • See your true net worth, with all of your financial accounts listed in one place
  • Analyze your investments and uncover hidden fees
  • Plan for long-term goals, like buying a house or saving for retirement

1 Capgemini, World Wealth Report 2022, June 14, 2022.

2 Spectrem Group, Market Insights Report 2021, March 15, 2021.

3 Spectrem Group, Market Insights Report 2021, March 15, 2021.

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