The HNI Segment

HNIs or high net worth individuals is a class of individuals who are distinguished from other retail segment based on their net wealth, assets and investible surplus. This is a very lucrative segment for financial advisors and there are many who have aligned their business model to suit the HNI client segment. However, as desired as the HNIs are, they are also peculiar in their characteristics and approach to managing finances.

HNI clients are also not easy to acquire. It would be also safe to say that almost all Ultra HNIs are clients of big wealth management firms and family offices. Fortunately, the size of the HNI market has been increasing very fast and today it is more spread-out and approachable for advisors. Today it is very much possible for small & mid-sized financial advisors to focus on and acquire HNI clients, in addition to their retail client base. In this article, we look at this HNI segment more closely and try to identify common profiles, characteristics, needs, problems and common solutions for the benefit of our readers.

Please note that this is a generalized piece meant for familiarizing you with a typical HNI client. It may be very much possible that your experience may differ with us but then, it will only help you get more clarity on the image of an average HNI in mainstream discussions.

Definition:
There is no standard definition of a High Networth Individual in India and the definition of HNIs varies with the geographical area as well as financial markets and institutions. Generally, the following definitions are the most common...

• Ultra HNI: Above Rs.25 crores of investible surplus
• HNI: Rs.2 crores of investible surplus
• Emerging HNI: Rs.25 lakhs to Rs.2 crores of investible surplus

Profiling:

• The Inheritor: Inheritors are born in rich families, having established businesses & social network with easy access to capital and then going on to inherit business /wealth.
• The Self Made: First generation entrepreneurs who have strived and build businesses and have created wealth through success.
• The Professional: Highly qualified, skilled professionals who have created wealth as they have reached leadership /top management positions in their companies which have grew big or have got big reputation and success as professionals in their field.

Depending on the nature /source of their wealth, the HNIs generally also differ in many other attributes regarding how they perceive and manage wealth. The wealth dynamics of each type of investor is unique. It would be interesting to decode their mindset on different parameters...

Characteristics & Trends of HNIs today:

• The number of HNIs & Ultra HNIs is rising at a fast pace (estimates range from over 17% to 22% annually)
• The age of HNIs falling with growth of the digital age & emergence of E-Commerce
• HNI segment today is heterogeneous; meaning HNIs are increasingly from all social backgrounds, unlike before
• Most HNIs are distinguished individuals in social networks of power and influence
• HNIs today are more outgoing, showcasing wealth and experimenting
• HNIs are more today more spread across Tier 2 & Tier 3 cities and not concentrated to metros
• HNIs are increasingly heavy spenders on high quality homes, luxuries, travel, entertainment and education
• HNIs have investments majorly into their own businesses and realty
• Growing companies and industries are putting many employees into the HNIs segments

Major objectives of HNIs:
While most of needs of HNIs are pretty obvious, the difference lies in the way they approach each area of finance its' background complexity. Typically HNIs are likely to be more aware of financial markets and products. They are also more like to have higher risks taking ability and willingness. Their financial background would also be likely to be deeper and more complex.

The following are the broad scope of needs of HNIs....

• Investments & wealth management: HNIs are looking primarily for
• Wealth accumulation
• Wealth preservation
• Liquidity
• Holistic view of personal wealth & business wealth
• Protection of wealth: HNIs are primarily looking for protection solutions to safeguard their wealth and assets against liabilities and business risks.
• Credit management: Here HNIs are mainly concerned about leveraging investments and managing liquidity with credit across personal space and business space (working capital, term loans, promoter funding, etc.)
• Inheritance planning: Here the primary objective is of smooth transfer of wealth to next generation in a tax efficient manner with appropriate legal structures.
• Tax planning: HNIs consider this as inherent part of any financial decision where they primarily look at post tax returns and tax deductibility.
• Charity and supporting social cause: Increasing more HNIs are also willing to support social cause like wild life, nature and education.

Common wealth management issues of HNIs:

• Wealth concentration on own business and no diversification
• Less consolidation /scattered investments with difficulty in tracking performance
• Personal assets likely to be provided as security to liabilities
• Too much complexity in holdings and investments
• No clear financial goals /objectives from investments
• Internal family dynamics affecting decision making
• Locked up investments in illiquid avenues

Common wealth management solutions for HNIs:

• Investments
  • Segregation of business and personal wealth
  • Consolidation of all assets & liabilities – business & personal
  • Identification of wealth goals /objectives
  • Diversification across asset classes /products
  • Monetisation of business wealth
  • Unlocking of illiquid wealth
• Protection
  • Ring fence personal wealth from business liabilities
  • Plan for financial independence of family members
  • Take insurance for assets and business /professional liabilities
  • Look at insuring life, health for all family members
• Inheritance
  • Write proper Wills for family members
  • Create structures like Trust for smooth transfer of wealth & assets

Challenges in acquiring HNI clients

• Not easy to get leads, references and appointments
• More relationship driven and have to like you first to do business
• Winning trust & confidence is a time taking process
• Competition from Family Offices, financial institutions
• Want single window solutions for all needs
• Expect good reputation, qualifications, infrastructure and high service standards

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