ExecuSpeak Dictionary: High Net Worth

PHILADELPHIA (MainStreet) -- The meaning of high net worth? It depends. It's not the meaning of "net worth" that creates the variations, though; it's the meaning of the word "high."

The term, in its fullest expression, is high net worth individual. It's generally a description of people with money, property and other assets that greatly exceed their level of debt. But the exact amount of money that makes someone a high net worth individual varies by bank, investment adviser, marketing department, and the Securities Exchange Commission.

The SEC uses the measurement of net worth of $1 million or more as one of many measures to define the phrase "accredited investor." Financial companies may offer services that are exempt from certain SEC rules to accredited investors and that, all by itself, creates a market segment.

High net worth individual is a market segment. Financial institutions of all types want to quantify the size of the market of people with investable assets. So the amount of net worth ascribed to a high net worth individual does not always include a primary residence, art, jewelry or any other asset that is not readily converted to cash. The marketing department's interest is typical:

• How big is the market? How many individuals? How many families?
• What services would be of interest and value to this market segment?
• How do we find them so that we may query them and learn of their interests?
• How do we communicate with them to sell our services?

And thus the absolute definition varies based on the marketing strategy of the financial services provider. That explains why Schwab(SCHW) offers its Private Client Services to those with $500,000 in a Schwab account and Morgan Stanley(MS) sets the bar at $5 million. A brokerage may consider any client with an account of $100,000 or $300,000 to be worthy of special services but not call them "high net worth." A Cogent Research study evaluating the HNWI customers' opinion of warehouses, though, queried those with $100,000 or more of investable assets. This highlights the need to look at the definition of the high net worth segment when looking at data.

So how many high net worth individuals are there in the United States? There is no one source of data, but various estimates. The most current estimate of 10.5 million people with a net worth over $1 million is from a Deloitte global assessment this year that includes primary residence as a part of the calculation. (For those doing the arithmetic, ~3.4% of the U.S. population fits this definition.)

High net worth individuals are not to be confused with high-earning individuals. The book The Millionaire Next Door provided a clear analysis of the "average" millionaire as someone of moderate earnings who lived below their means and saved money. The typical HNWI is not "living large." That group has its own market segment: ultra high net worth individuals ... those with a net worth of $30 million or more.

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