Financial Planning for Ultra-High-Net-Worth Individuals in the U.S. and Canada

Written by John Woodfield, Portfolio Manager, CIM® CFP®

Financial planning for ultra-high-net-worth individuals involves strategies designed to maximize investment returns while minimizing taxes and protecting assets. It also includes personalized risk management, philanthropic considerations and multi-generational wealth transfer planning.

If you’re an ultra-high-net-worth individual or part of an ultra-high-net-worth family, then it’s important to review some of the big mistakes people make that cause them to lose money, as well as what can be done to prevent these mistakes.

It’s important that you don’t overlook asset protection tools like trusts and insurance as well as tax planning and estate planning. There are often ways to keep more of your income and protect your legacy, and it’s important to take advantage of those opportunities.

TABLE OF CONTENTS

1. Top Financial Planning Mistakes Ultra-High-Net-Worth Individuals Typically Make
2. What Is Considered Ultra-High Net Worth?
3. UHNW Financial Planning Strategies
4. Wealth Management
5. Estate Planning and Legacy Planning Are Critical
6. How To Choose a Financial Advisor if You Have an Ultra-High Net Worth
7. Other Financial Planning Considerations
8. Cross-Border Financial Planning for Americans Living in Canada
9. Common Questions About Financial Planning for Ultra-High-Net-Worth Individuals and Families

Top Financial Planning Mistakes Ultra-High-Net-Worth Individuals Typically Make

The following list contains a number of items often overlooked by ultra-high-net-worth individuals:

• Ultra-high-net-worth individuals are often so focused on the accumulation of assets that they overlook the importance of asset protection tools such as trusts and insurance. This can leave them vulnerable to unforeseen events.
• They can often neglect succession and estate planning. This can lead to complications in wealth transfer, unnecessary taxes, and disputes among family members.
• These individuals often lack diversification in their investments. Wealth can be concentrated in a limited number of assets, creating unnecessary risk.
• They sometimes ignore UHNW tax planning; tax laws are complex, and equally complex planning must be employed to protect wealth.

What Is Considered Ultra-High Net Worth?

There is no precise definition of ultra-high net worth, though, in general, to reach this level, an individual or household would have to have several tens of millions of dollars or more.

Four Important Financial Planning Considerations for Ultra-High-Net-Worth Individuals

1 Tax Planning

Tax optimization—minimizing tax obligations—is a significant part of planning for ultra-high-net-worth individuals. These individuals are often asset-rich, and sizable tax hits can mean selling an asset at an inopportune time or being forced to borrow. They often have assets outside of their country of residence, further complicating taxation.

2 Asset Allocation

Ultra-high-net-worth individuals often lack diversification in their investments. Wealth can be concentrated in a limited number of assets, creating unnecessary risk. It is important for ultra-high-net-worth individuals to hold a variety of investments across a broad spectrum of areas to protect their wealth.

3 Rebalancing Your Portfolio

Periodic adjustments and rebalancing are crucial steps in the management of assets, since these changes can reduce exposure to areas that have risen in value and increase exposure to areas that are presently less expensive. This counterintuitive activity enables a systematic approach to investing that takes the emotional bias towards investing solely in what is presently doing well off the table.

4 Paying Yourself a Predictable Monthly Income

A balanced investment portfolio can easily generate monthly income. This income can be sourced from interest, dividends, capital gains, or the return on capital. Each source of income incurs different tax treatment, and so the deposits can be structured tax efficiently.

5 Comprehensive Wealth Management

Ultra-high-net-worth individuals often need to work with a team of specialized professionals, including financial advisors, tax experts, estate planners and legal professionals.

6 Wealth Transfer and Succession Planning

The orderly transfer of wealth is a crucial aspect of maintaining wealth through generations. Strategies such as establishing trusts or utilizing insurance are popular ways to effectively transfer wealth.

7 Risk Management and Asset Protection

These are essential parts of building and maintaining wealth. It includes diversification of investments and the use of insurance for protection. It also includes the utilization of legal strategies to shield assets from legal claims.

8 Philanthropic Strategy

Many people who have accumulated wealth have philanthropic goals and may want to create charitable foundations or have donor-advised funds. Formulating such a strategy will maximize the impact of charitable donations while making the most of potential tax benefits.

Wealth Management for Ultra-High-Net-Worth Individuals

Wealth managers work with ultra-high-net-worth individuals to create a comprehensive financial plan structured to meet their objectives.

This plan includes:

• Assessing the present situation
• Setting goals and determining objectives
• Cash flow management
• Tax optimization
• Risk management
• Philanthropy

Estate Planning and Legacy Planning Are Critical

Ultra-high-net-worth individuals or families should be focused on the transition of wealth from one generation to the next. This is a tricky process since taxes are generally incurred upon an individual’s passing.

How To Choose a Financial Advisor, as an Ultra-High-Net-Worth Individual

Consider some of the following categories when assessing a potential financial advisor or wealth management team.

Experience and Expertise:

Look for a fiduciary financial advisor with extensive experience working with ultra-high-net-worth individuals. They should have a deep understanding of the challenges and complexities associated with managing substantial wealth.

Specialized Services:

Ensure that the financial advisor offers a comprehensive range of specialized services. This may include portfolio management, tax strategies, estate planning, risk management, philanthropy, and wealth transfer strategies.

Fiduciary Duty:

Choose a financial advisor who operates under a fiduciary duty. This means they are legally obligated to act in your best interest. In Canada, portfolio managers and CFPs are fiduciaries.

Team and Resources:

Consider the support and resources available to the financial advisor. Managing substantial wealth often requires involving a team of professionals, including tax experts, estate planners, and legal advisors.

Reputation and References:

Research the reputation of the financial advisor and their firm. Look for client reviews and seek referrals from individuals with similar financial circumstances.

Ongoing Communication and Reporting:

Ensure that the financial advisor has a system for regular communication and reporting. They should provide regular updates on the performance of your investments, changes in the market, and progress towards your financial goals.

Choosing the right financial advisor for your ultra-high-net-worth wealth requires careful consideration.

Evaluate your options, conduct interviews, and seek recommendations from trusted sources. A trusted and experienced advisor can provide valuable guidance and help you navigate the complexities of managing and preserving your wealth.

Cross-Border Financial Planning for UHNW Americans Living in Canada

Fortunately, the tax treaty between Canada and the United States facilitates cross-border wealth management and is structured to avoid double taxation. U.S. citizens have to be keenly aware of the investments they are able to hold and the structures they are able to maintain. For example, the PFIC rules make holding some Canadian investments inadvisable.

Also, differing accounting systems and the need to file a U.S. tax return can complicate matters. Utilizing a cross-border licensed investment advisor helps smooth out the process.

Common Questions About Financial Planning for Ultra-High-Net-Worth Individuals and Families

Q: What net worth is considered ultra-high net worth?

A: There is no precise definition of ultra-high net worth, though, in general, to reach this level, an individual or household would have to have several tens of millions of dollars or more.

Q: How do ultra-high-net-worth individuals invest?

A: Ultra-high-net-worth individuals generally own a variety of investments, including real estate, company shares, bonds, and alternative investments. They are often also involved in private companies and their own businesses.

Q: What is high-net-worth financial planning?

A: High-net-worth planning involves a focused and personalized approach that takes into account the specifics of the person’s or family’s situation. It generally involves a team approach consisting of the planning team (often linked to the portfolio manager/investment advisor), an accountant, and a lawyer.

Q: Who needs high-net-worth financial planning?

A: There is a need for high-level financial planning for anyone who is an ultra-high-net-worth individual. Many potential mistakes can be avoided with proper planning. The use of advanced strategies, such as trusts or insurance, are two examples of ways to mitigate or eliminate risk.

Summary of Key Points:

• Financial planning strategies for UHNW individuals include wealth management, tax optimization, succession planning, and philanthropy.
• Wealth managers create a comprehensive financial plan focusing on estate and legacy planning.
• Consider working with a fiduciary who has a legal obligation to put your best interests first.
• Your wealth management strategy should include a thorough review of trusts, insurance, and tax planning strategies to ensure you’re not overlooking ways to protect your assets.

Next Steps

If you’re a Canadian resident or are planning on moving to Canada and need assistance with moving and optimizing your investments, estate planning, wealth management and portfolio management, please get in touch. At SWAN Wealth, we specialize in Canadian financial planning, cross-border financial planning and cross-border wealth management.

Related Articles:

If you’re seeking to protect your assets and income streams, please review some of these articles aimed at helping high and ultra-high-net-worth families and individuals in Canada.

How to Reduce Taxes for High Income Earners in Canada

Trusts in Canada

Family Trusts in Canada

Cross-Border Estate Planning Guide

How Capital Gains are Taxed in Canada

About the Author

John Woodfield is a Financial Management Advisor (FMA), a Chartered Investment Manager (CIM), and a Certified Financial Planner (CFP), and in 2007, was inducted as a Fellow of the Canadian Securities Institute (FCSI). As a portfolio manager and CFP®, he works with clients across Canada. John Woodfield’s clients are families, individuals and business owners who understand the importance of comprehensive wealth and investment plans driven by the lifestyle they want to lead.

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