Do HNIs need financial planning?
When it comes to investments, most HNIs prefer PMS (Portfolio Management Services), AIF (Alternative Investment Services), direct stocks, etc. as far as equity allocation is concerned. For debt part, they usually prefer FMPs (Fixed Maturity Plans). They are also more inclined towards real estate investments and they specifically prefer the commercial real estate space. Apart from the above investments they also have a steady income from business or profession which comes with a lavish lifestyle.
The question is who is HNI (High Networth Individual)? HNI is anybody who has an investible surplus above Rs. 2 crores to Rs. 5 crores. HNIs usually rely on a continuous flow of income, the future flow of cash to cover all the future bills and lots of assets that they have accumulated over years, either through inheritance or by way of impulsive purchases. That said, this is the very reason why HNIs also require financial plan provided they have a stupendous income not just from their business and profession but also from their investments.
Financial planning not only deals with investments but also takes a deep look at your overall finances along with the risk that you and your family may be exposed to. There is a huge risk if you are of the opinion that nothing can go wrong depending on the current continuous income. But have you ever considered the flip side of it? Assume that your business goes through a rough patch? Will you be able to provide for your monthly expenses and your travel? Will you be able to take a hit on your lifestyle?
Even before investing, financial planning first makes provisions for the major short-term as well as long-term risks so that you can maintain your current lifestyle and protect your investments and savings that you are making for certain financial needs and wants. Contingency or emergency fund is something one should start with. Typically, for HNIs having six months to nine months of expenses as an emergency reserve is always advisable. Apart from this, being in a business or profession income is of fluctuating nature. Businesses usually run through peaks and troughs which may demand an additional infusion of capital to maintain working capital requirements. So, making a provision for the same would help you to manage such last hour working capital needs for your business or profession. However, HNIs believe that investing all money business is the way to go as the growth is under their control, hence if they are putting in all their efforts, they think they cannot go wrong. However, external factors such as the economy are never considered.
Provisioning for medical expenses should not be ignored. If to handle major illness you or your family member may require treatment from top doctors and at the best hospital facility. While doing so saving family member’s life is the topmost priority irrespective of the humongous cost involved in it. So, it becomes important to assess risk and then take appropriate cover for such expenses and also alongside maintain a medical corpus to help you in case such cover fall short.
Not just health but even most of the HNIs ignore life cover as they feel there are enough wealth and assets created to look after their spouse’s and children’s needs. If the main contributor to wealth and assets dies then the family gets impacted not only emotionally but financially as well. In some situations, it has been seen that it becomes difficult for the spouse to retain her standing in the business or even in the family. She may sometimes end up being dependent on others for her daily needs. Their emotional loss cannot be covered but with the help of life insurance, you can secure your family and help them maintain the desired lifestyle even in your absence.
Estate planning is another part which should not be ignored. So, having an estate plan in place in the form of will or trust, depending upon the requirements is important. This ensures smooth pass on of assets among your legal heirs.
Having wealth doesn’t mean you don’t need financial planning. The financial plan should be in the first place even before your wealth plan. Remember, without financial planning wealth management would be meaningless.