It is the world's largest wealth management firm and it is also a major player advising clients about philanthropy. Just as economies of scale apply in parts of the financial services space, they bring efficiencies and impact to transfering money for good causes.

As banker to around half the world’s billionaires and the largest global wealth manager by assets managed, UBS has scale, not to mention big brand presence. As Christmas and the giving season gets in full swing, we decided to look more closely at how philanthropy is done at scale. Foremost is how those taking a more industrialized approach to giving are shaking up the sector.

For his thoughts on this, sandwiched between meetings in Hong Kong and the US West Coast, this publication met with the bank's head of philanthropy, Tom Hall. “I am slightly guilty over my [carbon] offsets but I am being as effective as I can be,” he began sheepishly back at UBS’s London headquarters. Hall has run philanthropy at the wealth management arm for the past six years, where he manages 22 client-facing advisors. There are another 40 or so managed by others split between operations and the group’s well-established Optimus Foundation.

The set-up suggests that philanthropy is a sizable operation and in fee terms is an inclusive part of UBS’ wealth services. “The fact that 90 per cent of our clients are already engaged in philanthropy and many more want to do more has been a totally unifying factor for us,” Hall said.

By UBS’ estimates, the total wealth of billionaires globally stands at around $7.6 trillion, up from $1 trillion in 2000, and 80 per cent of that wealth is self-made. It  is soon evident that this “self-made” element is what is propelling the sector for UBS and paving the way for that first question to clients: “’What’s it all for?’”

Hall has asked this of around 1,200 families over his tenure and said that most are planning to give away anywhere from 25 per cent up to 95 per cent of their total wealth. 

“We find that after protecting their lifestyle and family to the point [where] they are not disincentivizing them from achieving their potential, the question is ’How much is too much for my children?’ Nine out of ten families share this worry, which leaves a huge proportion of wealth left over for having an impact on the world.”

The next question is: “‘How do I maximize my impact?', which is essentially “our core role,” he said.

As momentum for sustainable and impact investing grows, so have efforts to scale up philanthropy’s part in tackling global healthcare, climate risk, social mobility, and two areas UBS has recently focused on, ending child sexual exploitation and bringing basic sustainable healthcare to targeted African countries.

The UN’s Sustainable Development Goals have become the industry’s Holy Grail for channeling all this intent and capital into those most up to the task of delivering. But under the messy umbrella of ESG, investors and advisors have been scrambling for clarity on who’s being ethical and who’s riding the coattails of this surge to align investments with values. BlackRock is the most recent singled out for talking a good game on sustainable finance when in reality it is ESG light running mostly passive funds. The asset management giant is not alone in taking flak. (This publication has reported on the need for clearer language in this space.)

For philanthropy’s part in building better outcomes, Hall reckons that there is $400 billion coming into the sector annually, with current total capital in the $1.5 trillion mark. He is optimistic this will reach $5 trillion by the end of the decade, based on a new crop of wealth creators being observed by his team that are more in tune with "answering the question as to what their wealth is for."

With roughly $94 trillion held in private wealth and $300 trillion in the total investment market, “the money is out there", he argues in terms of the estimated $2.5 trillion a year the UN says is needed to meet the SDG goals.

How much governments and financial institutions have achieved in this quest was amply on show in Madrid this week when the latest climate talks ended in deadlock, once again.

Scattershot
One problem for finance is that finding the best companies and solutions to pour money into is currently a scattershot approach. “Money is being dissipated but across a lot of small organizations, which doesn’t add up to a huge amount of impact,” Hall said.

“We see a huge role in trying to identify those winners, those ideas, be it organizations or partnerships between governments and philanthropists that have the potential to solve big issues, and takes resources that arguably only big institutions, or highly orchestrated collaborations, can achieve.”

Water is one example. “We did a piece of research recently, and found there are 59 water charities out there globally, all with a turnover of about a million dollars, yet we only have two major airline manufacturers globally. “Do we need 59 water organizations, probably not?”

This frustration shows where fault lines are growing between how large financial institutions do philanthropy and how it has more traditionally operated among non-profits. In Hall's view, it is why philanthropists often say, ‘I would give more if I really thought it was impactful’ or ‘anything I do give is just a drop in the ocean. It’s two sides of the same coin.”

This was reinforced in a recent Barclays survey of clients, in which many donors expressed an overall lack of trust in the charity and giving sector.

The study asked clients what current percentage of their income they were giving away to charity. The results rang alarm bells because they were surprisingly low. But Hall suggests, “If the question had been how much of your total wealth do you see ultimately giving to charity, the answer would be very different.”

Where wealth managers earn their keep in this respect is bringing wealthy donors and institutions together to support a theme and create impact at scale. No easy task.

“It’s not easy,” Hall admitted. “We did a piece of research two years ago with Harvard University that showed there are 262,000 foundations in the world, and 60 per cent have never worked with another one.“

Scale in action
UBS is demonstrating this scale approach in efforts on anti-trafficking, which many big clients have raised with their advisors. The firm's research found that around 44 million people live in a form of modern day slavery, with about 1.2 million girls in India alone in some form of sexual exploitation.

“It is one of those heartbreaking issues and we have had a number of families start to say I want to do something about this,” Hall said. To start the effort, UBS convened a host of families in Atlanta in 2018 to ask: “What catalytic thing could a group of philanthropists do that would have a dial-moving effect on this issue?”

Their response was to focus on one country and commit enough resources over a short timeframe to end trafficking in that place. It would be evidence based and delivered through a model that could be replicated in other locations, with Kenya and Bangladesh as the first targeted countries.

“Our researchers were in the Bangladesh capital for five minutes before they were offered a seven-year-old girl by the taxi driver very openly,” Hall said. “It is a pretty difficult area. But we think that all of the political and social sector pieces are in place within a five-year period to have a deep impact on this."

Suggesting the approach sounds a lot like private equity, Hall agreed there is "a high degree of correlation.”

On the client side, the deal anatomy has been raising $50 million between 20 families who give half a million a year for five years. “That really isn’t that difficult to do. Well it is", he conceded, "but it shouldn’t be."

Getting the right support on the ground is another challenge. Hall said UBS approves only about 5 per cent of the organizations it looks at that are working in these locations.

“Obviously, we are looking at finance, governance, and impact due diligence, but the critical factor in any organization is the people. “Are they a learning organisation? Are they adaptive to grow and develop? Do they listen? All the factors you see in a good investment, you see in a philanthropic investment.”

Pilots can be instrumental in proving whether an approach works and can sometimes kick-start governments. “When they aren’t in a position to take risks and innovate because there’s too much else to do, philanthropists can start that,” Hall said.

Green finance to the rescue has certainly stiffened resolve in some quarters and rankled in others. Asked whether this surge in impact investing was changing the more benign nature of inheritance, Hall responded: “If we’re totally honest, it’s too early to say. At this stage most of the wealth creators in the last 25 years are still alive and they have pledged often to give a lot of it away. But we haven’t seen those pledges realized at scale yet.

"At the same time other people could be looking at that same pool of wealth and saying, ‘Look at all this money that is about to be inherited by the next generation?’

What will happen to this pool of wealth over the next five to ten years, will most likely include a mixture of both, he said. “It goes down to this ‘How much is too much for my kids’? question that is deeply personal."

To grab a share of this transfer, the biggest expected between generations, thanks to wealth accumulated by boomers, UBS is training its advisors in every global market on how to talk to clients about philanthropy. Historically, either clients haven’t talked to their banker or advisors because they haven’t known they needed to or those conversations have been limited to the tax or investment structure, in Hall's view.

“What we have been doing is training client advisors on the whole concept of impact and that only 5 to 10 per cent of the philanthropy question is the tax and structure piece. There is a hygiene factor of whether you can give tax-effectively. But it’s not why people give.”