Most high net worth investor (HNI) families we meet feel they have enough wealth. The wealth is usually spread across their business, a slew of properties both residential and commercial, Public Provident Fund accounts across all the family member's names, bonds, stocks, mutual funds, Fixed Deposits, structured products, Portfolio Management Services, etc.
Most of the HNIs feel comfortable and content that there is a continuous source of income to take care of all their expenses and a lavish lifestyle - house, shopping, travel, entertainment, etc. on a regular basis. Rarely does one feel the need to save from this income.
One is essentially relying on:
- Continuous flow of income
- Future flow of money to foot all the future bills
- Lots of assets that have been accumulated over years, either by way of inheritance from parents/in-laws or by way of impulsive purchases
So where does financial planning come in? The first and most important step in financial planning is to assess all aspects of risk that you and your family are exposed to. Some of them include:
The dependency on continuous income assuming nothing can go wrong is a huge risk. What if the business goes through a rough patch? How will you provide for your monthly expenses and your travel? Will you allow your lifestyle to take a hit?
We always prescribe a contingency reserve of at least six months to a year to be set aside in a mix of liquid plus arbitrage funds to cater to such emergencies. Some people prefer to keep FDs for the same too.
World over, business owners know that growth is not usually linear; there is always a trough followed by a peak. Sometimes, business may also need an infusion of capital either to handle sudden working capital requirements or for some urgent mega expansion plans.
Hence as a part of financial planning, setting aside money from the business for expansion or for temporary infusion is a must for HNIs. HNIs believe investing back in the business is more than enough as the growth is under their control and hence they cannot go wrong when they are putting in all their efforts. The risk of economy or bad business deals are rarely considered as part of planning. The foundation of the business must be rock solid and there should be enough assets invested outside of the business to dip into in case of rough weather.
The risk of medical expenses in case of any ailment can never be understated. If one needs to handle any major ailment that requires treatment from top doctors or at the best hospital facility, one would only want to save the family member's life regardless of the humungous costs involved or the dent in the pocket that such an ailment would cause.
It is important to first assess the risk cover needs and then ensure adequate medical cover, accidental cover, critical illness cover for HNI families. Evaluating and getting the right health cover is an absolute must.
Apart from medical cover, life cover is usually neglected by HNIs as they feel that there is enough wealth for the spouse and the children to be looked after. If the main contributor to wealth passes away, not only does the family get impacted, but also the business. In some situations, we have seen it is 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 sustenance
A good life cover goes a long way in ensuring security of family goals and independence for the spouse, irrespective of wealth accumulated. Making a Will is also an important action plan.
The writer is CEO at My Financial Advisor
