Enhancing your role as a trusted professional adviser
Chaired by Jake Hayman, CEO of Ten Years’ Time, the panel consisted of philanthropist and social entrepreneur Grant Gordon, KPMG partner Jo Bateson and Anthony Donatelli, director of philanthropy services UK at UBS.
Zofia Sochanik, director of training and development at Philanthropy Impact, welcomed the attendees before Nandu Patel, head of charities and managing director at Rothschild & Co, stood to address the audience. Patel spoke of how the topic resonated with his organisation. ‘Throughout their 200-year track record in finance, the Rothschild family has always believed, in a very significant way, in philanthropy and the mutually beneficial partnership between responsible business and supporting the community and society at large.’ Through Rothschild’s own foundations and through external charities, Patel continued, ‘they’ve shown… that private philanthropy can have a significant and beneficial impact to society and to community.’
Equally as important is receiving good advice. Patel quoted a statistic that those who are advised well in philanthropy tend to give 17x more than those who are not, in the form of donations and grants to philanthropic causes. Therefore, ‘the need for more advisers, for better advisers, and for better-trained advisers is an absolute imperative.’
Hayman then began the discussion. ‘I thought what we’d do this evening is have a proper conversation, rather than a platitudinous one, about the role of advisers, wealth, philanthropy and trust’.
After establishing that around half of the audience work in some sort of advisory role, Hayman noted it is ‘quite easy to think of advisers, and these unbelievably wealthy people they work with who are flying above us in private jets, as in a completely different world from our own.’ But there are common links. Hayman asked how many people in the room have a pension (everyone) and how many people in the room believed in man-made climate change (everyone). ‘How many people know for a fact that their pensions are completely divested from fossil-fuel intensive industries?’ Around a quarter raised their hand. ‘And how many people know not just that their pensions are divested from fossil-fuel industries, but that they are carbon negative?’ Almost no hands were raised. ‘If you don’t know for a fact, I promise you, it’s not true.’
Therefore, ‘we are all being failed one way or another in our quest to live our values and our beliefs through our money, through services we are provided by our employer, or the advice that we get. It’s no different for wealthy individuals.’
Another statistic – provided by Philanthropy Impact – says that the average rating for philanthropy and social investment advice from HNWI falls below six out of ten (5.8). How can this be explained, and what can be done to improve it?
Grant Gordon was asked to speak first on this, having been on the receiving end of advice throughout his philanthropic journey. Gordon wasn’t sure he recognised the 5.8 statistic; he has found value in discussions with a law firm around governance when he and his family were setting up their grant making foundation. Equally, he has found value in wealth management and financial institutions through their ability to make connections. ‘Once they’ve understood what our goals are… the best advisers are the ones who connect the dots… and your networks are greater’. Gordon spoke of his interest in cause-related networks, and that he found value in advisers who bring knowledge and experience, whilst also helping to introduce him to other grant makers and, indeed, other families.
Donatelli was asked for UBS’ perspective. Increasingly, he said, clients want an holistic and integrated wealth management service, which UBS seek to provide. Often the question can come down to – what is my wealth actually for? ‘Once it gets to a certain level, it’s ultimately going to be for some other purpose… The Bill Gates’, the Mark Zuckerberg’s, they’re the cliché examples, but they give most, or a large portion, of their money away. We’ve seen that trend cascade down… to the typical clients we engage with, who do want to set aside a large portion of their wealth for something else, which is largely focused on philanthropy.’
UBS has a global team of 60 and provides everything from advice – what does good look like, strategy, structuring – through to the ‘more difficult bits, where once you have your legal vehicle, how do you deploy the capital and not cause harm, and maximise your social impact? Because none of us, including Bill, have enough money to solve these problems.’
Turning to Bateson, Hayman asked if KPMG should play a more active role and get into strategies and values, or should they ‘structure and get out the way’? KPMG has been around for 150 years this year, and Bateson responded that moving into a more advisory space ‘is something we’re on our voyage of discovery at the moment’. However, their ‘view is around community, and actually our focus is to stick with what we’re good at… It’s about creating a community of other advisers with strengths in particular areas… but also a community of clients.’ For Bateson herself, she is an inheritance tax specialist, and one key thing clients come to her with is their legacy when they die. ‘That’s not specifically about philanthropy, but then it brings on that conversation.’
Donatelli said there are different types of advice: ‘the reason we can talk about deploying capital is not because they’re employing people like me, but rather because of in-house experts from the development sector who have years of experience and expertise who actually can say ‘this is a good investment, we’ve done good due diligence on this, and we think you should put your money here’.’
Gordon then wished to acknowledge the ‘softer issues’ for families. ‘When it came to setting up our family business foundation six years ago, there were divergent views in the family about what that should be about, what it should look like… it was important that we found a way to break through that. During that process, we worked on those softer issues with an adviser – we were challenging each other across the table, but we got to a good place in the end.’
Hayman asked Donatelli about hiring from the development sector. The charity sector, he said, is worried about this trend. ‘They already feel that philanthropists are disconnected from them, the staff they hire are from a privileged minority and don’t represent the communities they serve, they don’t have that expertise, and now people are going to be moving even further away and getting their advice from banks… and also accountancies that are taking tax dollars out of the government purse – whether that’s fair or not, that is the impression from the charity sector… What’s the case that professional advisers, trusted advisers, should be acting as structured intermediaries, as opposed to leaving that to community groups?’
Donatelli responded that it’s not that community groups should take a step back, but rather that ‘solving problems is hard… it requires collaboration, different stakeholders to engage in that; if the status quo was working, there wouldn’t be a need for advice, or other people to engage. I think philanthropists themselves are looking to see more and more what is the actual return on their dollar… We distil it down to an investment-based approach, an entrepreneurial approach. If you’re born after 1990, Bill Gates is more known for his foundation than Microsoft. It’s his life. That’s really what it requires to solve global issues.’ UBS is bringing specialisation from the banking sector into the social sector for those people who are more inclined to effective altruism, the metrics-based approach. ‘We offer this because we know it’s something that’s becoming increasingly important and if you’re main client base is extremely interested in this subject matter, and you can’t engage on that, then you’re not leading the institution.’
Gordon said he thought one of the biggest challenges is with the new generation – millennials – and how they see philanthropy. ‘Do they see it in a positive way? How do they view wealth, more broadly? Do they see that we’re responsible stewards of that wealth? Very often the answer is no.’ Particularly around tax and climate change, said Gordon, ‘they have much more of a spectrum view. Philanthropy is fine as long as it comes with a responsible approach to your entire wealth. It’s important for advisers, in helping us and working together through these challenges… Trillions will be passed over in the next decade or two, into the hands of the next generation, and they’re asking a bunch of really challenging questions.’
Bateson responded that lots of her clients also had trust issues around particular charities. Hayman pushed back that charity sector trust levels are higher than big accounting firms, but Bateson disagreed on this. ‘The whole thing needs reform – more heads together is better than none… We’re all trying to do the same thing, just approaching it in a slightly different way.’ Clients of hers are asking questions about social good which don’t strictly fall under ‘charitable’ – the rules are blurring, requiring innovation around maximising impact.
Building on Grant’s points about the next generation, Hayman asked about hypocrisy. ‘Speaking to a lot of next-gen wealth, the reality is they want to be good citizens, they’re scared about climate change, they want to give philanthropically, but their money is offshore, tax-minimised, profit-maximised… and they feel really uncomfortable with it.’ People in the advisory sector are trying to do the best with their clients, but are their tensions in the industry now about where the cumulative effects of the whole industry on the bulk of the money, as opposed to the positive effect of those people within it who are driving change? Is there a challenge that the industry needs to face up to?
Bateson said that these comments about offshore, tax-minimised wealth are outdated, and that from her experience it’s not the type of tax advice offered anymore. ‘The industry has massively changed, how people look after their wealth has massively changed.’ Most clients don’t want that tension. Bateson says it doesn’t mean you’re bad if you’re offshore, but that the industry has certainly changed a lot over the last twenty years.
Donatelli added that conversations around sustainable investments are increasingly common, and that there are more conversations around net impact. ‘You might be saving lives, and you have measurable data and evidence with your $1 million grant making in a year, but if your $300 million is invested in companies which are trafficking children, what is your net impact? And these things are really hard to measure, both the impact of an operating company and the impact of your investments, but it is something we are trying to more and more highlight and talk about. How can your entire asset base further your social or environmental mission?’
Gordon said that as a user of client services, ‘we recognise you’re on a journey too. We’re all on a journey, and none of us are perfect’ – and that they look to organisations who are serious about change. He admitted that this is more of a ‘feel’, rather than hard numbers, but that it is something they look at when they’re considering who they want to work with.
Around ethical practice, are advisers being stretched by their clients around ethical practice? Donatelli said yes. Bateson said through the audit process, the strength of audit committees can be through their demands. ‘An example of this is asking for a certain number of women in the auditing process, so professional services are changing through this.’
It was then time for questions from the audience. One asked about the effect of MiFID II, a legislative framework where one part requires advisers to ask their clients what their ESG preferences are in determining the suitability of their investments. It was agreed that it would be a lot of work for the industry, but that it will be positive. Donatelli said that it ‘would only be a positive for client advisers to ask these questions and have a comfortable level of understanding to talk about these topics.’ This will then naturally lead to more investment opportunities – but this comes back to what ‘impact’ means. ‘Sustainability is at worst, marketing, at best, its real, causal, measurable impact.’
Do advisers have the tools to talk about sustainability and values with their clients? On values, yes – but talking about impact, sustainable, and ESG investing – ‘today, no. Most of our advisers would say it was outside of their comfort zone, and therefore they’re not going to talk about it. But then it’s a chicken or egg situation, where it doesn’t grow. It’s the same with philanthropy. When we started six years ago in the UK, client advisers had no idea how to talk about it, whereas now… [after] years of constant, consistent education and communication, there’s a very high percentage that feel very comfortable talking about it, and they bring it up and it grows.’ Bateson agreed that MiFID II sounds like a great opportunity, and that regulation is a great way to enact real change.
Hayman said he looked at an ESG fund the other day which had passed through 497 out of 500 stocks, including Exxon. ‘The devil will be in the detail on the implementation side of things, but at least we’re forcing the conversation.’
Should there be more knowledge within the charity sector around mature types of giving, such as Donor Advised Funds? And how does UBS, KPMG et al., deal with attracting newer generations of clients, when their philanthropy team advise them one way but corporately, the organisation has loans going out to other businesses that cause climate change?
Donatelli said it is important to provide the right advice. He gave an example from a weeks ago, where there was an individual with substantial wealth who wanted to save ‘x million’ number of lives in his lifetime. ‘He had lots of money planned to be given away and he wanted to invest in a model from one country and bring it to another. He wanted UBS to engage and co-fund alongside him in order to do this, and provide strategic consulting services around it. UBS looked at the model, and it had no data that said it was good, or that it was working. Beyond that, they looked at the estimates of costs to save a life – and we went back and said, ‘it will cost you $900 million to $6 billion to save x number of lives, and you’ve told us you have $100 million. There’s no way in doing what you want to do that you can achieve your objective.’ The best advice is not necessarily going to be what they want to hear, so it’s important that you should do what’s best for the client, but also guide them toward what you think is most impactful. ‘The plan you have is not going to achieve your goal, so therefore we suggest you do something else.’
Bateson said it is important to share knowledge in this area, as there’s always new things coming out. ‘KPMG partners with NSPCC and gives them training on tax relief, gift aid, so when they fundraise they do so from a basic tax knowledge. We’re good at tax, but in return they give us insights into their own challenges.’
On the second point, Bateson wished to distinguish between ‘the services we do ourselves, and we are very conscious about how we go about that. We are a living wage employer, we are conscious of our carbon footprint’ and ‘the types of clients that we work with and the businesses that they do. We’re on a journey about how we do that, and in a way that is consistent with our values that are important to us. You’re right, that where a large corporate gets that right, it means they will be more attractive as a brand, but there’s no one out there who’s got it 100% right and people are working on that.’
Hayman said beyond being conscious about carbon footprint, for big accounting firms, the core services they provide to their clients will have a market impact on how much money there is to pay for schools, hospitals and nurses. In the same way, UBS’s investments, the weight of capital they have behind them will either drive climate change, or drive us away from it. Either increase inequality, or distribute wealth. ‘How do those big conversations happen in the space where you’re also trying to service a client in front of you?’ To Gordon, he asked whether he would ‘rather find an advisory firm that gives excellent philanthropic advice but was giving someone else advice that took money out of the exchequer and pushed for fossil fuels, or would you rather find one that had less philanthropy advice but wasn’t doing either of those things in the first place?’
Gordon said it was ultimately not about the philanthropy advice, but the bigger picture, which includes a clear idea of the purpose of your wealth, and your values.
Hayman remarked that perhaps we’re heading to a place where doing any harm isn’t acceptable, and it’s about the amount of good you can do on top. What is it that accelerates that journey? Is it customers, is it leadership? ‘It’s a combination, it’s clients, it’s next gen, it’s millennials, it’s coming from leadership,’ responded Donatelli. ‘To make big change it needs big organisations to align from the top, or it doesn’t get the legs and the traction needed.’ Again, regulation is also important. ‘It might seem like a tick box exercise, but it’s certainly a better world if every client adviser needs to once a year ask every single client and record: ‘what is your vision? What are your values? How do you want to invest?’ Because they’re not doing it.’
Perhaps we get the advice we deserve, said Hayman. If we’re lazy about our pensions, they go to the easiest investments, which could be disproportionately heavy on fossil fuels. Is that on our pension funds, or on us because we haven’t stood up, and we haven’t excluded? Banks will just follow the market. Donatelli responded that due to client demand, the UBS Optimus Foundation, which for 20 years has historically focused on health, education and child protection issues, has hired an environmental program director to build out space to engage with clients on that. in addition to the social issues.
Another question came in around family governance. With so many divergent views within multiple generations, how have the panel been able to help things come together?
Gordon replied that from his perspective, it is vital to get the next generation involved in creating the forums and the process. ‘Do they buy into it? The next generation have to feel comfortable, listened to, and feel that their voice is as equal as anyone else’s.’
Bateson acknowledged that these topics can get quite fractious, but that it’s because people care. ‘You don’t get that excited about tax, but you do about the value of your money and the purpose of it.’ KPMG have a smooth process to help walk family’s through this, where they listen to each person individually and then report back with group themes. ‘As a family, it’s great if you can do something together, but not every family can. Whether they decide on a proportionate approach, or whether they split it out, there are many approaches.’ Value is through KPMG being able to tell clients what other families have done, share their experiences and provide them options.
An audience member then commented that ESG funders can be so different, and that it is important to make sure that clients understand the spectrum. ‘We’re not talking about one thing, and excluding stocks isn’t always the way to influence them.’
Another question was a challenge to the wealth management industry to recognise
I wonder to what extend the industry – which KPMG and UBS are leading – are going to work together and lead the way, and welcome the coming changes? Unity of the asset management world could really make a difference.
Donatelli says UBS try to take the view that they want to do what is most impactful, otherwise you’re not giving good advice. Gordon says for every adviser there is a huge opportunity to help donors get educated. ‘We can learn a huge amount through the experience you’ve got.’
Hayman discussed an audience member’s point around investment activism. ‘I sit on the board of a £150 million foundation, and we were talking about whether or not we could influence change through being shareholders in a business, or whether we should divest/invest along our morals. The moral maze we went through left me with the conclusion that it is your investors who are engaging in order to improve a business, but we cannot also profit from that engagement. Therefore, any money that we make from holding the oil company that are trying to transition into a solar power company, shouldn’t cape to pay our salaries or to run our grants pot and it should be given to a separate charity. And that means that for our financial advisers, that it can’t count towards the return targets that we’re looking for. I think that’s the only way to square the moral circle that doesn’t leave us with the excuse of signing a letter once a year saying that we’re engaging, whilst making as much money as possible.’
Hayman finished up by answering an audience member’s question about what, in his view, the role of a should professional adviser be.
‘I think we can’t overstate the importance of this sector and lawyers, accountants, banks, will have a huge role for better or worse on the future and shape of our planet and society, and I think that they should absolutely be engaging on these issues. But if they are going to engage by hiring someone to do philanthropy whilst business as usual continues, then they shouldn’t bother. Unless they are going to be able to do things with proper investment and expertise, then they should be signposting rather than advising, as they are not qualified to do it.’
Amy McGoldrick is the Marketing, Advertising & Events Manager at Alliance magazine.
To watch a full recording of the panel discussion, click here.