What makes a client 'high net worth'?

What's the true definition of high net worth?

"The more things change, the more they stay the same." It's a popular phrase ... but one that's not always the case - particularly when it comes to defining value and determining costs.

Consider the price to see a major motion picture on the big screen. According to The National Association of Theater Owners, the average price of a movie ticket runs around $9.18. While that's up from $2.23 back in 1977, when adjusted for inflation, it's closer to $9.40. Go to New York City or Boston, though, and that average spikes upward of $13.

The same goes for more substantial purchases, like buying a house. Based on the most up-to-date numbers from the National Association of Realtors, an existing single-family style home in the second quarter of 2018 sold for $269,000. In the West, however, the same house will cost you more than $403,300.

This is sort of how defining high net worth works. High net worth clients are important to target because they're the primary users of wealth management products, such as Leveraged Planning® Solutions. But depending on what source you go to, you'll likely find varying interpretations of what makes someone truly high net worth.

High net worth definition
Before addressing this, though, what does net worth mean? For the sake of simplicity and in the case of an individual, net worth is the number you get when subtracting a person's investable assets from his or her liabilities. That end figure is the numeric equivalent of someone's net worth.

When it comes to the high net worth definition, however, there's little unanimity. For instance, according to The Economist, high-net-worth individuals (HNWIs) are those whose investable assets total no less than $1 million. Using this figure as a baseline, this means there are roughly 16.5 million HNWIs globally, based on data from the consulting firm Capgemini. That's a 7.5 percent increase from the previous year.

But as Investopedia reported, the high-net-worth category can be subject to interpretation because costs of living are quite different from region to region and country to country. As previously referenced, what it costs to buy a house in Las Vegas and Los Angeles is much higher than in Muncie, Indiana, or Rockford, Illinois.

Our definition of HNW
Here at Global Financial Distributors, we believe the high net worth club is a bit more elite than what other sources contend. Because the cost of living has risen, as has the number of millionaires worldwide, high net worth individuals are those whose investable assets total $5 million or more. Given this, it means roughly 1.1 million Americans fall into the HNW category. Of this total, approximately 56 percent of HNWI are baby boomers, ranging between 47 and 66 years of age. An additional 33 percent are 67 years of age or older.

Perhaps unsurprisingly, particularly in light of the surging U.S. economy, America is home to the largest number of millionaires. Around 5 million people in the U.S. are worth seven figures or more, up 10 percent from the previous year, Investopedia reported from Capgemini data. The lion's share of the world's millionaire population - 61 percent - live in one of four countries: the U.S., Japan, Germany and China. India recorded the largest uptick in millionaires, rising 20 percent compared to 2016.

It goes without saying that a person's overall worth isn't defined by his or her balance sheet. But by having a clearer understanding of what makes someone HNW in the financial sense of the term can help you narrow down the playing field so you're more successful with your prospecting pursuits.

News Category: