What Is a High-Net-Worth Individual (HNWI)?

High-Net-Worth Individuals Explained

woman in black shirt with grey hair sitting on couch doing work
•••

Cavan Images / Getty Images

A high-net-worth individual (HNWI) is someone whose liquid assets are worth at least $1 million.  Liquid assets are those that can be quickly sold for cash. While stocks and bonds are considered liquid assets, a piece of real estate is not.

Learn exactly how to determine if someone is a high-net-worth individual and why this classification is used by wealth management firms.

Definition and Examples of a High-Net-Worth Individual

A high-net-worth individual is someone who has liquid assets such as cash, stocks, and bonds worth at least $1 million. This is a title used by many wealth management firms to tailor their marketing and services appropriately.

  • Alternate definition: In some cases, the U.S. Securities and Exchange Commission (SEC) defines a high-net-worth individual as someone with at least $750,000 under management by a financial advisor, or someone with a net worth of more than $1.5 million.
  • Acronym: HNWI

For example, if you owned $1 million worth of Apple stocks or bonds, you would likely be considered a high-net-worth individual. On the other hand, say you own no stocks or bonds but have $5 million of equity in real estate. While you own real estate assets, you would not be considered a high-net-worth individual.

The reason for this is because the term high-net-worth individual is the creation of wealth management firms. Generally, these firms manage clients’ liquid assets, not their real estate portfolios.

How Does It Work for High-Net-Worth Individuals?

High-net-worth individuals are prime targets for wealth management firms. This is not only because they have at least $1 million in liquid assets for the firm to manage, but because they also often have more complex financial situations. This allows the firm to advise—and collect fees—more often.

In 2020, the number of high-net-worth households with $1 million to $5 million in net worth reached 11.6 million, a 5.5% increase over the previous year, according to a report by investment bank Spectrem Group.

Types of High-Net-Worth Individuals

Some wealth management firms further arrange high-net-worth individuals into various tiers.  Here are three common examples, according to information technology company Capgemini:

  1. High-net-worth-individual (HNWI): Someone whose liquid assets are worth between $1 million and $5 million.
  2. Mid-tier millionaire: Generally, someone whose liquid assets are worth between $5 million and $30 million.
  3. Ultra-high-net-worth individual (UHNWI): Generally, someone whose liquid assets are worth $30 million or more.

The sub-classifications of high-net-worth individuals will vary from firm to firm, and the qualifications for each will differ as well.

For example, investment firm Vanguard offers its Flagship services to high-net-worth investors, which it classifies as investors with between $1 million and $5 million in Vanguard assets. However, once a client has $5 million or more in investable assets, Vanguard describes them as “ultra-high-net-worth investors” and offers them its Flagship Select services.

Goldman Sachs on the other hand, sets the “ultra-high-net-worth” threshold at $10 million in liquid assets.

High-Net-Worth Individual vs. Mass Affluent

High-net-worth individuals are not the only segment used by wealth management firms. There is also a group called mass affluent. These individuals have liquid assets of at least $100,000, but less than $1 million.

High-Net-Worth Individual Mass Affluent
Liquid assets of at least $1 million Liquid assets between $100,000 and $1 million
Likely to receive one-on-one wealth management services May not receive wealth management services

According to Goldman Sachs, mass affluent individuals are considered consumers, but would not receive wealth management services. They would instead receive the digital services provided by the company, but not one-on-one, advisor-led services.

Criticism of High-Net-Worth Individuals

A major problem of categorizing investors into different groups based on their liquid assets is that those with less than $1 million in liquid assets will not have the same resources that high-net-worth individuals do. In the case of financial services, they will not receive the same advice. 

This is problematic because individuals with less than $1 million in liquid assets may in fact need financial advice even more so than high-net-worth individuals. They may not get the same amount of attention from wealth managers and advisors that high-net-worth individuals receive.

How To Become a High-Net-Worth Individual

Apart from receiving a sudden windfall, becoming a high-net-worth individual involves the gradual accumulation of assets over a long period of time.

You can start by determining how much in liquid assets you have today. Once you begin keeping track, you’ll be able to navigate how much more you have to accumulate in order to reach the $1 million threshold. Then you can take the steps necessary to increase your liquid assets. This may include increasing your income, reducing your savings, and investing the difference every month.

Due to their tax advantages, retirement accounts such as individual retirement accounts (IRAs) and 401(k) plans can greatly accelerate your path toward becoming a high-net-worth individual.

Key Takeaways

  • A high-net-worth individual is someone with liquid assets of $1 million or more.
  • Some wealth management firms further classify high-net-worth individuals into different tiers based on their net worth above $1 million.
  • The value of real estate one owns does not count when determining if they’re a high-net-worth individual. This is true for both one’s primary residence as well as investment properties.