Tom Hall, executive director and head of philanthropy services in the UK for UBS, tells Mike Hughes about the innovative ways in which the company is reinventing philanthropy.
More than 90% of UBS clients are now active philanthropists. Having worked with hundreds in his UBS career and before, Tom Hall has been watching the rise of the sector for years and sums it up with great clarity: “The focus of this new breed of philanthropists is to solve the social and environmental problems they are passionate about. They are willing to take big risks, including no financial return, in pursuit of those goals.”
Thankfully, the desire of HNW individuals to direct some of their wealth to good causes is growing, with around $1trillion already placed with foundations or funds worldwide. UBS is very much the innovator here, setting new benchmarks for the scope of its carefully-targeted impact across the world, and for the span of its network of leading experts who place money where it will have the longest-lasting effects. Tom is part of a team of 40 philanthropy, academic and social investment experts working at UBS to help in what is becoming one of the financial world’s most influential areas.
One of the issues UBS is tackling is that for decades it has been fashionable for philanthropists to attempt to address global problems on a small scale, perhaps building their own schools or hospitals in developing economies, often with very little chance of reaching scale or sustainability. UBS guides and redirects that ethical mission to make it more innovative and able to sustain more risk, a strategy backed by the pioneering Bill Gates who said philanthropists need to find more effective ways of solving problems by collaborating extensively with other philanthropists and governments to explore the scale necessary to achieve significant results.
“It’s an exciting time to be working in philanthropy. The industry is being led by ‘new wealth’. Spearheaded by hero philanthropists such as Bill Gates and Mark Zuckerberg, those who have made their money through entrepreneurialism are not satisfied to rest on their laurels but are instead seeking new, better ways to create social impact,” said Tom.
“As the biggest wealth manager in the world, we have taken the time to ask ourselves what the purpose of wealth is once the family is taken care of and there is more than enough left to spend. Increasingly, philanthropy is placed high on the priority list.
“In the next 30 years, there will be around $2trillion ring-fenced for social purpose. Philanthropy has grown to become a fundamental part of wealth management, but one insight we gained a few years ago was that only about 20 per cent of our clients thought their giving was effective. So on the one hand there is a huge amount of money, but on the other, a sense that it is not delivering the right results.”
UBS recognises the important role of purpose and fulfilment in philanthropy. It is no longer enough to only give large amounts away to good causes: clients are now looking to achieve societal impact first and foremost, with financial considerations secondary for many.
With its ‘band of brokers’ around the world, UBS is in a position to deeply analyse data and target the money where it can be the most life-changing.
“If you are a client service business, you try to solve clients’ problems. We have found that clients welcome as much support and advice in how to ‘give’ effectively as they do in how to invest,” Tom told me.
“The philanthropy industry is less regulated so it is quite easy to end up making mistakes and wasting your money, and at UBS we know that poorly thought out funding can actually make problems worse. In Malawi I saw malaria nets just hanging up outside fishermen’s huts because, although there had been well-meaning funds, no one had invested in a distribution strategy. And because the nets were impregnated to treat the malaria, they poisoned the fish. As a result, thousands of people got sick and many died.”
This unique level of hands-on experience and insight is a powerful weapon for UBS clients as the role of the financial adviser grows to become an essential link in the philanthropy chain: accumulate the wealth; decide that philanthropy is a priority; focus on an area you want to help; seek advice from the experts; see the life-changing benefits.
Tom said: “For some philanthropists, just giving is enough, but for us that is just the start of the process. We need to be innovating all the time, and products like our Donor-Advised Foundation shows how that innovation leads to practical solutions.
“People who have the wealth have in the past often been encouraged to set up a foundation, which has a lot of costs attached in creating and running it. DAFs are innovative because they can give people the same functionality as their own foundation at a fraction of the cost – or in our case, zero cost.
“Instead of spending £30,000 a year running the structure, that money becomes another grant. When put into context alongside the national budget being spent on education, healthcare and infrastructure, philanthropy won’t go very far if it isn’t spent well, so it’s important that giving is done in the most efficient way.
“From our perspective as wealth managers we are now hearing the right question – ‘how do I get the best risk-adjusted social return on my investment?’.
“I see it as being all about sustainability and layering up what you are aiming to do to possibly change a whole economy. Through our Optimus Foundation we talked to our clients who really wanted to address health issues and knew we needed to look at ways of scaling the impact they could have.
“We looked at places in the world where people had the least access to healthcare and we came to Liberia, where funding doctors and nurses was pointless because the economy couldn’t sustain them. So we funded a small organisation to train women, who have never had a job, to diagnose and treat the top ten killer diseases. With just $200,000 and a nurse employed to mentor the women, a 76% reduction in infant and child mortality was achieved.
“Then, when Ebola hit, we invested a couple of million dollars and worked with our partner Last Mile Health to scale it up to cover half of the country. Within six months, the spread of Ebola had been contained. By reducing mortality rates in places like this, you offer the chance of increasing educational attainment and growing the GDP.”
The Liberian government has now made the women key advisers on their health policy, which underlines to a remarkable extent the value of philanthropy being painstakingly targeted and the far-reaching effects it can have when the usual routes are side-stepped in favour of innovation and imagination.
This makes you think what Tom and his team will achieve with $100m or $1billion – and all starting with the first knock on the door from a UBS customer wanting to start a new financial journey.
Tom explains: “The really exciting thing for us is that, at the macro level, UBS manages about $2trillion of wealth and about one per cent goes in to philanthropy already. This amounts to around $20billion - more than all the major US foundations put together. But our analysis would be that, while a lot of that is project-focused and having a direct impact, it is not having what we would call a market-level impact creating new ways of doing things.
“So we will tell those clients that we want to support them on their journey wherever they are. At the front end of that, they need to think how much they want to give and then we can help them plan how to give that efficiently.
“This is where the DAF might come in. If you were giving £20million of your £40million fortune and yet you only had an annual income of £500,000, then giving it all in one go might not be as efficient a route as giving that £20million over 20 years and effectively doubling your giving capacity. Products like the UBS Donor-Advised Foundation can help with that because it allows you to take advantage of current potential tax benefits of giving to charity and gives you the option of making grants now or building a long-term fund to create a lasting legacy.
“We would also advise clients not to be too concerned in the early stages about where to direct the money; trust that we will help work that out. Then we will look at the areas our clients are passionate about and where we can maximise its effect; you can’t separate passion and philanthropy. We want our clients to see that passion alone or good intentions alone are absolutely not enough – you need to give with your head and your heart. We offer this as a high-level consultancy, but where we differ from other banks is that we then also have the Optimus Foundation where we can do extensive due diligence to organisations and programmes and find that really scalable, system-changing impact that can be sustained.
“Optimus can connect clients with inspiring entrepreneurs, new technologies, and models that have proven effect.
“That very fine targeting or strategic philanthropy that we have been doing in many forms since 1999 is achieved by leveraging a global database of research. In that time, there has been a proliferation of data. We have hired an expert team in-house, who have a keen sense of both what is going on in their clients’ universe and what the very latest research is.
“Our clients can then build on that knowledge base. We have a clear process whereby whenever we do something new, we need to create feedback and learn from it. This ensures we never pile money into something that people are passionate about but which is not going to be successful.
“To help that, we also pay for a team of academic experts to audit the recommendations and assess them to add yet another level of credibility and rigour.”
UBS is pioneering a new freedom in the way their clients look at their philanthropy, and Tom has innovative ideas about any future regulation of the sector.
“I think we are better off educating rather than regulating,” he says. “And if people are better educated about what ‘good’ looks like then at a very simple level they come to know about the core elements around what creates impact: input - when the money goes in; output – what is done with the money; and the crucial third one which is outcome – you have to be able to see a change.
“Our message is that philanthropy is a great thing and more and more people want to do it. We can help you maximise the impact - but it is not simple. People who understand UBS understand that having the resources to invest does not make you an expert in investing. We are the experts and working so closely with our clients gives both sides the very best chance of significant success.”
One of the most innovative areas of philanthropy in which UBS is a market leader is the idea of outcome purchasing. This means that you are spending money with the expectation of a particular result, as Tom explains. “In our view governments could spend their money more effectively to get the outcome they want to achieve. In education, for example, directly commissioning things is an inefficient way of spending public money and it would be better to buy results, like a young person being educated and therefore staying out of prison or a child being adopted and being able to come out of the care system.
“These outcomes have good impact for the individual and good social impact in terms of costs saved or long-term productivity being increased, so we see an outcome-purchasing market developing which is already worth about £120million worldwide.
“One way of doing this is through social impact bonds, where private capital takes the risk based on an outcome that government or foundations are paying for. We really like these concepts because you are taking capital and using it in a much more effective and cyclical way.”
UBS is, of course, putting its money where its mouth is. The Optimus Foundation has put up the initial investment to launch the world’s first Development Impact Bond (DIB). Focused on closing the gender gap in enrolment and improving children’s learning levels in Rajasthan, India, the DIB is already on track to meet ambitious three-year targets for increasing the numbers of girls enrolled into primary education and furthering students’ progress in English, Hindi and maths. UBS has always been an innovator closer to home as well, developing a network of local funds making smaller loans (less than £250,000) using Social Investment Tax Relief, introduced by the government to encourage private investors to fund social services and community projects.
Working with impact investment specialist Resonance, UBS became a mainstream pioneer of this type of social investment in the UK, starting with a number of enterprises in Bristol. The agility on show here is both essential and admirable. Philanthropy is fast-moving and growing in importance all the time. The combination of individuals like Tom Hall, his team of advisers and experts and the reach of UBS itself is what is keeping it at the top of the sector.
It has grown to become an instinctive innovator and influencer in every sector, working with its clients to help make the world a better place by tackling the most pressing economic, social and environmental problems.
“I love my work and always feel immensely privileged to do what I do,” says Tom. “I will probably always be a little bit impatient to do more because we now pretty much know how to ensure a billion people have access to healthcare – it is now just a function of time and capital. We must continue to get the message out there that people can give in such a compelling way.”