Under normal circumstances, the crucial importance of comprehensive financial planning for high-net-worth individuals (HNWIs) can't be overestimated. Add the economic uncertainty and geopolitical instability in the U.S. and abroad, and you could face a rapidly evolving financial landscape. Existing financial plans virtually demand to be revisited.

For financial planning to be comprehensive, you will want to address seven essential areas that help you protect and grow your wealth while providing peace of mind by aligning financial goals with your personal values and family priorities.

After describing each area, we'll see how financial advisors can add value and provide specialized services to HNWIs. An advisor serves not only as a planner but can deliver integrated advice by acting as a trusted coordinator who works with your team of other specialized advisors, such as CPAs, estate attorneys and insurance agents.

Lastly, we'll identify the risks you might face by neglecting each area of financial planning, along with an example of how one of the risks might typically play out.

Investment Management and Asset Allocation

The first essential area of financial planning is having a portfolio diversified across asset classes, including alternative investments such as private equity, hedge funds and real estate to optimize returns. That portfolio should be tailored to meet your near- and long-term goals while it balances your risk tolerance, liquidity needs and changing market conditions.

A trusted advisor can build, monitor and periodically rebalance a portfolio of traditional and alternative investments customized to your needs. Other services can include identifying and implementing tax-efficient investing strategies, such as opting for municipal bonds or tax-favored sectors, plus providing stress testing and regular performance reviews with you.

Failure to address investment management and asset allocation effectively can lead to these risks:

• Poor diversification of your portfolio that can lead to material losses during market downturns.
• Overexposure to illiquid assets, which can result in cash flow issues.
• Missed growth opportunities if you fail to take advantage of tax-efficient opportunities, for example.

A typical case might be a tech entrepreneur who invests too heavily in a single company stock – say, her own – and sees her net worth decimated when the value of her company plummets. Being insufficiently diversified could exacerbate her situation by having to sell shares at a loss to meet living expenses. 

Tax Planning and Optimization

Income and capital gains taxes are in the crosshairs of U.S. and global politicians, particularly for HNWIs. Mitigation calls for tax planning and optimization that starts with strategically using tax-advantaged accounts, such as IRAs and 401(k)s. It also involves charitable giving strategies, using philanthropic vehicles such as donor-advised funds and charitable remainder trusts to minimize tax burdens. Other tools to minimize tax liabilities can range from tax-loss harvesting to income-deferring techniques.

Your advisor can collaborate with your tax attorneys and CPAs to design strategies that minimize the taxes on income, capital gains and your estate – while keeping abreast of relevant legislative changes. Actions might entail Roth IRA conversions, well-timed asset sales, charitable deductions and maximized direct gifting strategies.

• Not focusing on tax planning and optimization can result in:
• Higher tax liabilities because income and assets were structured inefficiently.
• Overlooked opportunities to use timely Roth IRA conversions, charitable deductions or gifting.
• Large estate tax bills that accumulate at death, leaving less wealth available to heirs.

How might taking such risks play out negatively? A real estate investor may fail to implement a gifting strategy over the years, taking advantage of available giftable amounts. When he dies, his heirs could face a multi-million dollar estate tax bill that requires selling several high-value properties at unfavorable market prices to cover the taxes.

Estate Planning and Wealth Transfer

Estate planning may feel mundane if limited to developing wills, trusts and advanced directives so life can end smoothly. However, for HNWIs, wealth transfer represents much more, including minimizing estate, gift and inheritance taxes through proper structuring – and implementing family governance strategies to manage generational wealth effectively.

A financial advisor familiar with your personal values, family dynamics and the day-to-day reality of your finances can work closely with estate attorneys to ensure that any actions align perfectly with your goals. Guidance can range from creating and managing trusts (including spousal lifetime access trusts, or SLATs, to protect against future reductions in federal estate tax exemptions) to direct gifting strategies within lifetime exemptions. Advisors can provide beneficiary designation reviews and facilitate family meetings where family unity is preserved during legacy planning discussions.

Ignoring the need for estate planning and wealth transfer can lead to:

• Significant estate taxes that can diminish the value of transferred wealth.
• Legal battles among family members over assets because wills are unclear or outdated.
• Delays in asset distribution that can trigger liquidity problems for heirs.

How might this look? Bitter family disputes and costly legal battles could result from the widow of a business owner finding her deceased husband's will had not been updated in years. Unbeknownst to her, most of the estate went to her husband's sibling instead of their children.

Risk Management and Insurance Planning

Living longer in a world of escalating uncertainties adds to the importance of risk management and comprehensive insurance planning. You will want life insurance, disability insurance and long-term care coverage to protect your wealth. As an HNWI, you will also want umbrella policies and specific insurance for high-value assets such as homes, art and recreational toys.

Your financial advisor can coordinate with insurance specialists and analyze potential risks to develop appropriate insurance strategies. These can entail regular policy reviews to be sure your coverage aligns with life's circumstances as they change. Your advisor can also orient you on self-insurance or captive insurance strategies to help protect assets and income streams if you have a business.

The risks of not having the appropriate coverage can result in:

• Leaving assets exposed to lawsuits or natural disasters.
• Jeopardizing the family's lifestyle if you have inadequate life or disability insurance.
• Erosion of your wealth if you face unforeseen health care or long-term care expenses.

A possible example could be if a wealthy couple loses their vacation home to a wildfire or hurricane, only to discover their insurance policy didn't fully cover today's replacement costs. They could affect their retirement plans if they dip into their investment portfolio to rebuild.

Retirement and Cash Flow Planning

Retirement and cash flow planning are probably the most familiar areas of comprehensive financial planning. Projecting your retirement needs would typically include health care and lifestyle expenses through your later years. It would define a vitally important 'safe withdrawal rate' strategy that combines with retirement income projections to be sure you don't outlive your assets.

Your financial advisor can work with you to create long-term retirement income strategies, including optimizing the timing of Social Security and pension benefits to enhance lifetime income for you and your spouse. As for outflow, you will want careful Retirement Minimum Distribution (RMD) planning and cash reserve management for your lifestyle and liquidity needs.

The downside of overlooking retirement and cash flow planning is:

• Outliving retirement savings because of poor planning or early withdrawals.
• Grossly underestimating your future health care or long-term care expenses.
• Reducing lifetime Social Security benefits by missing optimization opportunities that are still available.

For example, a retired executive might start withdrawing from his retirement accounts without a clear strategy, especially one that considers the sequence-of-returns risk. After a few years, he may realize he was depleting his assets too quickly and would have to downsize his home and lifestyle significantly.

Philanthropic and Legacy Planning

Philanthropic and legacy planning may be defined exclusively by you and your spouse. However, engaging future generations in the process early on can be invaluable. Planning entails developing charitable goals that align with family values, creating private foundations or endowments to leave a lasting impact and involving family members when coordinating legacy plans to ensure shared vision and commitment.

Your advisor can facilitate sensitive family legacy discussions as you define your charitable and legacy goals and align them with the wealth transfer strategies you've defined. Besides establishing and managing the chosen vehicles, such as foundations, endowments or donor-advised funds, your advisor can maximize the impact of donations by integrating your plans with any gifting or impact investments you choose to make.

If you fail to address this aspect of comprehensive financial planning, you might:

• Not have your philanthropic intentions honored for lack of a formal structure.
• Miss tax benefits from charitable giving strategies.
• Diminish the impact of philanthropic efforts because of family disputes over legacy plans. 

Not unheard of are situations where a philanthropist intends to leave a sizable portion of her estate to charity but fails to establish a formal trust or foundation. After her passing, family members might contest the will, leading to a much-reduced donation amount because of legal fees.

Business Succession Planning

If you own a business, comprehensive financial planning takes on another aspect: business succession planning. Its purpose is to ensure smooth leadership transition and liquidity for business owners. Your planning might entail buy-sell agreements, funding via insurance and business valuation strategies. Alternatively, you might use trusts or family members to maintain control and preserve wealth.

Your financial advisor might work with the business's owners to develop transition strategies that align with personal and financial goals. Strategies could involve family members or key employees in succession planning or provide guidance on selling or transferring businesses to third parties.

Skipping this step in comprehensive financial planning could result in:

• An eroded business value caused by a lack of clear succession or exit strategy.
• Family members or key employees arguing over leadership transitions.
• Missing the chance to make tax-efficient business transfers or sales.

Anecdotes shared by friends have surely included a family-owned business with no succession plan or buy-sell agreement. When the founder passed away unexpectedly, the heirs disagreed on how to run the company, so it was eventually sold at a distressed price. 

Without foresight and comprehensive planning, even individuals with substantial wealth can face severe financial and emotional setbacks. Working proactively with a trusted financial advisor helps mitigate those risks by ensuring your wealth is grown, protected and transferred according to your wishes. Careful planning enables you to avoid costly mistakes and enjoy knowing every aspect of your financial life is optimized and aligned with your long-term vision and legacy goals.

At WH Cornerstone, we're particularly adept at identifying and mitigating "curveball events:" life's unexpected challenges. Working effectively with HNWIs often follows the framework we call Curve Ball Life Planning™. To explore this process, schedule a call with us. We're here to help.