Response to Funeral Plan Regulation from Stephen Pett of the Funeral Plan Advice Service Ltd firstname.lastname@example.org 01323 740844 2 Hankham Street Hankham Pevensey BN24 5BG
Why Not The FCA?
The worst sector in the market is the non profit guaranteed over 50s plan, which are by far and away the leading providers of so called funeral plans in the market. As they are already regulated by the FCA and are the main source of consumer detriment in the market*, it makes little sense to allow the FCA to regulate the rest of the market when they have such a poor record of protecting consumers.
In general terms, the FCAs main claims to fame in the consumer market are:
- Decimating the supply of advice (not just independent advice) in the market to such an extent that they have had to promote non-commercial services to “guide” rather than advise the public who can no longer get advice. Well over 90% of advisers have left the market since 1988, in a wildly more complex era when advice is ever more important.
- Introducing and promoting Compo Culture to the detriment of public confidence in the industry.
- Failing totally to lead from the front in terms of ensuring that risk warnings are accurate and consumers understand fully what they are getting when the regulator itself does not.
- Introducing the new type of multi tied adviser who are neither independent nor tied, just to add to public confusion.
- Making it very expensive and time consuming to be an advice giver with no certainty that the Financial Ombudsman Service will not decide in 30 years time that the good advice given today was (now) faulty, and getting you thrown out of your care home.
I am sure the FCA do a superb job in high level regulation, but their regulation of the consumer market has done very little to benefit anyone other than it’s many directors and the new industry of claims companies they have generated.
That said, there is a real need for stronger regulation, the key areas being:
- Regulation of Sales Practices – with consumers often no being aware of terms and conditions before they sign up, and firms relying on their new clients lack of motivation to read the terms and conditions of what they have purchased in time to cancel. The key facts should be clear and simple to understand, and issued BEFORE sale.
- Clarity on the financial situation of providers, and on their ability to take money out of Trust Funds for expenses or creating millionaires quickly. This should most certainly be reformed so that it becomes possible to compare trust or insurance funds in value and loophole terms.
- We believe that independent advice should be encouraged, and the chances are that the FCA will take a purist approach and insist that this can only be done by charging fees, rather than a pragmatic approach to allow consumers to get advice from advisers comparing the overwhelming majority of companies who are happy to pay commission. No harm in stopping competition through commission rather than quality of product though!
From a personal point of view, I would expect FCA Regulation to drive us out of business as one of the very few intermediaries trying to offer independent advice, but history makes it clear that regulatory ease is more important than consumer detriment.
Who offers the guarantees?
Why are so many funeral plan providers £1 or £100 companies?
Why are providers so secretive about their funds and deeds?
- Should the FCA Regulate the Industry?
I do not believe that the FCA is a competent regulator of public facing services, is far too bureaucratic and expensive. It currently has no serious understanding of the market, and past experience shows that it regulated from the rear – after things have gone wrong – rather than from the front where it would need to PREVENT things going wrong, requiring some understanding of products. It just is not their mindset: the PPI issue was common knowledge in 1988 and it took the FCA 20+ years to address it in a wildly inefficient way which created a new industry and compo culture. All that was needed was to make the PROVIDERS sort it out, so they paid for it rather than the public losing 25% to Claims Management Companies and the industry paying millions for needless highly negative TV campaigns rather have the FCA force the culprits to sort it out. Common sense is not a strong driver at the FCA.
- Should advisers be allowed to act as ARs for specific providers?
Should If you just want salespeople, this makes sense, but it is a sector of the market that the FCA has pretty much wiped out in insurance intermediation, and one can only assume their were reasons for this which might apply equally to the funeral plan market. In our case, though we are a small business, that would be unrealistic as we are independent and we would probably, as so many IFAs were, be driven out of business by the regulatory burden.
- Should Designated Professional Bodies be allowed to exempt firms from regulation?
I have no idea whom the author feels are potential DPBs but the only ones who I can think of who have any understanding of funeral plans are the Society of Will Writers and the Institute of Professional Will Writers.
- Bespoke Plans
Intermediaries job is to help the consumer get what they want in terms of a plan, but the authority for each plan comes from the funeral plan provider, not the intermediary, unless that intermediary is the funeral director.
- Should FOS be involved?
You would think so, in that the feedback loop between them and the FCA would improve the market. Sadly, FOS prides itself on having staff who don’t understand the market, and the FCA only wishes to lead from the rear. A more positive approach to both regulation and market improvement is required, which I believe could be developed far more quickly and cost effectively by the FPA.
- Near death plans. I believe we may have sold one, and these plans can create major savings. The exemption appears to us to defy logic.
- See above.
- Territorial scope. Many funeral plans are sold which may be used in the UK or abroad, and this exemption could potentially allow offshore companies scope to get round any form of regulation by selling plans which could potentially be used in the UK.
- Statutory Instrument This will achieve the objective if it is to stultify the industry.
- Impact Assessment Clearly whoever wrote the impact assessment is unfamiliar with FCA pay scales, the amount of paperwork they generate and the amount of work needed to comply with regulations when you are asked the simplest of questions. Extra costs at the FCA with be an absolute minimum of £1m a year, allowing for 1 senior and 5 other staff and expenses, and extra costs for the industry will be a minimum of 10 times that, probably nearer 50. In fact I imagine first year costs at the FCA would be several millions, rising each year. No reference has been made to the difficulty in innovating under a regime which regulates only the past and prides itself on compo after the event rather than prevention before.
- Books in surplus – clearly, if the contracts are sensible, not a problem.
- Books in loss – if there are any, the first port of call should be the former owners who may well have milked them
- Unable to be authorised. Some may not have the staff or finance to cope with the demands of FCA regulation and the consequent need to lay aside funds for future compo claims.
*Over 50s Plans are non- profit whole of life plans which NEVER have any cash value, except at point of death. At any other time, if the client misses a couple of premiums, they lose every penny. It would be interesting to request what proportion of these plans pay out, and I would be surprised if more than one third do. The rest will predominantly getting back what they have paid in or far less. The FCA sometimes deny regulating these plans, but as they can only be sold by regulated firms, that is a little daft.