Category Archives: regulation of prepaid funeral plans

regulation of prepaid funeral plans

Response to Funeral Plan Regulation

Response to Funeral Plan Regulation from Stephen Pett of the Funeral Plan Advice Service Ltd info@prepaidfuneralreview.co.uk 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.

Questions

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.

Are Prepaid Funeral Plans A Good Idea?

Before we go on to look at the negative aspects of prepaid funeral plans, let us look at a real-life example which happened in 2019 to make it clear that they may well be a good idea, even if not for everyone.

A friends mother died, and they went to their usual undertaker and arranged a funeral. It was just a standard cremation with a ceremony at the crematorium, and it cost £4,790.

He happened to mention it to me, and out of curiosity, I did some research, and it turned out that a fully guaranteed plan using the same funeral director and with exactly the same services would have given a massive saving of £1,655.

So the expectation that prepaid funeral plans are NOT a good idea is not one which should be accepted as a fact. In this case, had the family come to us a couple of weeks before the death, we could have saved a lot of money for them.  Incidentally, you can buy plans for friends or relatives and many providers allow you donate your own plan to a friend or relative.

Let’s get negative and examine the idea that funeral plans are poor value – it does happen.

Sometimes there is a new funeral director in town, offering exceptionally low rates to establish themselves in the area. It is certainly possible they might charge less than the cost of a prepaid plan, at least in the short term.  In some cases, you could cancel the plan and get back most of the original cost, but they are about more than saving money.  They are about simplicity, convenience, and avoiding disputes as the deceased made most of the arrangements

The Daily Mirror gives these reasons why funeral plans are bad value:

Funeral plans might seem like a good idea on paper – but they’re really not great value for money and are often high-pressure sold, which is why they’ve had some bad press lately. Here’s how the plans work:

  • Funeral plans are designed to pay for the costs of your funeral. But there are lots of things that they don’t cover, commonly flowers, headstones – even the burial plot.
  • You pay over instalments or in one lump sum payment. But there are costs for cancelling the policy and for paying by instalments and the policy doesn’t build up interest or insurance like an investment.
  • Funeral plans are a bit like savings clubs – so they aren’t regulated financial products, so you’ve got less consumer protection, though there is a scheme to help if one goes bust.

We certainly agree that some salespeople are high pressure, which is why we have a discussion with clients and POST out a full recommendation with all the information for them to read and act on when they are ready.

Unsurprisingly, funeral plans cover what they say they do, not other things.  Burial plots for example can cost £300 or £15,000 plus.  Burial is a more complex transaction, with headstones not being able to be erected form 6 months plus, and being there for the family rather than the deceased.  Again, even wider variations in cost can happen.

In terms of paying in installments, the extra costs are to provide some cover for the increasing costs over the years.  For a £3000 plan, you would not expect to be able to pay £300 a year over ten years, as the cost of the actual funeral could have doubled in that time, so those who paid in one go would effectively be subsidising the installment payers.

The third point is sort of valid, but client money is either kept in a ring-fenced independently managed and audited fund or with an insurance company which is regulated.  Full regulation is on the way, but is likely to be a double-edged weapon with choice and (our) independent advice becoming much more restricted.

Other disadvantages of prepaid funeral plans:

  1. Most plans have a cancellation charge to cover their costs.  Whilst they do vary rather widely, it should be very unusual to need to cancel a prepaid funeral plan.
  2. If you do cancel, you won’t get back more than you put in.  With the horrible over 50s non-profit plans, the only time you get anything back is when you die, provide the premiums are up to date.
  3. You don’t always get the funeral director you want, but then that one may have been sold long before you need the plans.  Most firms are actually not small private firms anyway, they are shopfronts for the big boys.
  4. It is worth repeating, that a funeral plan cover only the services they say they do – if you want flowers, posh or wicker coffins, headstones etc you need to specifically ask for them.
  5. At the end of the day, never buy a prepaid funeral plan without reading ALL the small print! So call us on 0800 0588 240 or use the enquiry form.

Safe Hands Funeral Plans and the FPA

The Funeral Planning Authority

Though there is no statutory regulation/governance of the funeral plan industry at the present time (meaning there is no official set of standards that funeral plan companies must, by law, conform to), here at Safe Hands Funeral Plans – as a company committed to ensuring customers’ best interests are served at all times – we fully advocate and support the idea of there being statutory regulation of the industry and we feel that the FPA, with its industry knowledge, experience and expertise should be given statutory regulatory status by the government (which would mean that all funeral plan providers, by law, would have to be registered with the FPA).

In May 2018, Safe Hands Funeral Plans submitted its formal application for registration with the Funeral Planning Authority. For any provider, the application, assessment and approval process can and does take several months to conclude – and here at SHFP we are as confident as we can possibly be that our all aspects of our operation will be found, by the FPA, to meet with their qualifying criteria, and that we will be successful in becoming registered with them well before the end of the 2018. In the mean time, customers should take great comfort from the fact that legislation exists, under the Regulated Activities Order (Financial Services and Markets Act 2000), that all funeral plan companies must, by law, abide by to ensure their customers’ monies are invested in trust funds that are independent (meaning the customers, not the company, are the beneficiaries of the trust fund), that the investment of the trust fund is independently managed, that the assets of the trust are independently analysed every 3 years to assess whether they are sufficient to cover the company’s liabilities (customers’ funerals, in other words), and that the company itself is independently audited. In all respects, Safe Hands Funeral Plans complies with this legislation.

Further details about the FPA and their registration process can be found at www.funeralplanningauthority.co.uk.

Golden Leaves The State of the Funeral Plan Market: Is Critiscism Well Founded?

(This is an interesting article – what it doesn’t emphasise is how important it is to get Independent advice on funeral plans – and we don’t think there is anyone who can match us in that respect!)

The State of The Funeral Plan Market.

Some openly aired criticism of the funeral planning industry is fair, appropriate and deserved. In fact harsh criticism in any industry is healthy, as it allows a sector to develop regulation to further improve its standards. Conversely, though, some of the over-exuberant and rather unattractive ‘bandwagon’ jumping, that the industry has witnessed particularly from some quarters of late – really hasn’t been helpful at all.

Golden Leaves Managing Director, Barry Floyd criticized media reporting of late, claiming that some journalists should be ashamed of themselves for publishing articles, some of which were so poor, that they were bordering on  “Sensationalist and scaremongering”

“It is a very sad day indeed when we see the general public being confused by a combination of poor, sensationalist and inaccurate reporting, shambolic radio shows and widespread confusion in terms of media content, as to the differences between the pre-need product and the poor value funeral insurance product. Does that mean that Golden Leaves or indeed most of the industry as a whole, is guilty of poor quality standards whilst delivering an unstable, unsustainable or poor value for money product to its clients – frankly, of course it doesn’t.

Our industry was founded by companies with pedigree, ethics and consumer protection at their very core and many of those companies still exist today and are just as reputable as they were decades ago. Golden Leaves has been pivotal in the development of the funeral planning industry since its inception in the early 1980s (being founder members of both the NAPFP and the FPA) and with this historical positioning in mind, we firmly believe that we are in a particularly credible position to deliver, quality, standards, valued products accompanied by impeccable heritage and pedigree. Golden Leaves has always had an intensely customer focused view of what constitutes appropriate sales practices and behaviour.

We refuse to work with far more sales partners than we agree to and this is testament to our robust compliance and on-boarding programmes. This fundamental approach by the brand has been clearly underpinned by a constant leadership team at Golden Leaves over the last eight years, whilst nearly all other mainstream planning companies have had several major officer appointment changes during that same period and some have even had a number of ownership changes. All this at a stage in the sector’s evolution, when it has experienced significant growth, most of which has been achieved by generating interest and sales outside of the funeral home, a channel that nearly all plan providers operate in.”

Since 2009, Golden Leaves has experienced meteoric growth that has seen its sales outstrip the performance increase of the FPA registered market over the same period by almost 400 per cent. The company’s market share has also increased to the highest point in the company’s history.

“All this growth has occurred at a time when increased market participants, operating across more varied distribution channels have made competition in the sector fierce. We are proud to say that even during these times of accelerated growth, we have not lost sight of our core principles. Our customer satisfaction rate is 99.8 percent based on our level of complaints compared against our level of sales. This is not to say that we are perfect. No brand operates without the occasional hiccup and this is why we vehemently support the increasing of the rigidity of the regulatory framework and governance provided by the FPA. Although all planning companies operate differing models, we believe that there should be a base level of quality and standards for all companies to at least achieve.”

The Golden Leaves Trust fund is fast approaching £100,000,000 with a surplus running at over 20 per cent surplus over its liabilities. It’s board of Trustees have significant backgrounds in both the field of consumer protection, trading standards and the world of financial investments; underpinning this are their investment banks Julius Baer (the world’s most capitalised bank) who have also just won the EUROMONEY award as the ‘World’s best bank for Wealth Management’ and Quilter Cheviot, one of the largest UK Investment banks that have been at the forefront of the investment sector for over 240 years.

“All Golden Leaves funeral plan funds are either placed into an insurance that is FCA regulated or an FPA regulated Trust fund providing security of funds to all of our clients. This is a position certainly not enjoyed by some other planning companies. So standing out from the sector is Golden Leaves, a company with an impeccable history and heritage. We believe we deliver a market leading product, secure and competitively priced, that protects our clients at the time of need whilst delivering significant peace of mind for their next of kin. We place our clients (our Golden Leaves) at the heart of everything we do, which is one of the reasons that our brand, that took over thirty years to build, is so trusted.”

This article was first published in the Funeral Service Times.

Funeral Planing Authority On Fairer Finance Report

The Funeral Planning Authority has its comments below. We believe that the Fairer Finance Report is highly influenced by its sponsor.  Dignity offers very expensive funerals and very expensive funeral plans. It operates 17 of the 20 most expensive crematoria in the UK and has been reported to the Competition and Markets Authority for its efforts in increasing costs with local monopolies.  The Funeral Planning Authority has made steps forward in its make up, but until it takes monitoring its own members seriously, it can’t pretend to be a Regulator. That said, anything is better than sending in the wrecking crew from the Financial Conduct Authority.  Yes, funeral plan sales need standards, and the industry (NOT led by the FPA) js taking giant strides to stop sales through call centres who do not act with integrity.   FCA Regulation has a track record of reducing the availability of advice by 95% – and we offer advice, not sales.

But on to the Funeral Planning Authority Press Release:

The FPA recognises some of the challenges within the Fairer Finance report and believes that driving up industry standards and helping to protect customers’ interests is of the upmost importance – and central to our work.  It is partly for these reasons that we have recently made our Board fully independent and are investing further in our Compliance activities.

Many of the issues which are detrimental to consumers relate primarily to providers who are not registered with the FPA and we believe this supports our view that customers should only deal with registered providers. We also believe there is a strong case for this to also apply to funeral directors.  Support for this approach would very quickly eliminate some of the poorest behaviour in the market.

FCA regulation is not the ‘easy’ option
When it comes to increasing regulation as recommended by the report the FPA believes that FCA regulation of the sector is not the ‘easy’ solution that it first seems. The report effectively acknowledges that it would take years but also suggests a lift and drop approach to FCA regulation would be relatively easy to implement. Given the different business models that exist we do not believe this to be the case. As a simple example in a trust based model it is not clear whether the FCA would regulate the provider, the trust or both.
 
FCA regulation would not lead to a better outcome for customers 
FCA regulation of the funeral plans sector would not lead to a better outcome for consumers as it would:

    • Increase the cost of plans as increased compliance costs are passed on to customers.
    • Reduce market choice as smaller players are excluded from the market to the benefit of larger players.
    • Potentially remove Funeral Directors from the sales process as the FCA regulatory regime makes it too onerous for firms to supervise them.
    • Move selling to more telephone based models that fit better with the FCA compliance regime.
    • Reduce the scrutiny on individual providers as these providers would be small firms in the FCA hierarchy of firms – increasing the likelihood that FCA would adopt a one size fits all approach requiring providers to meet similar standards and expectations to those applied to much higher risk sectors.
    • It has also been suggested that FCA regulation would provide access to the Financial Ombudsman Service and the FSCS. It is not at all clear how this would work in relation to these plans, which are a pre-payment for a funeral and not a financial investment.

FPA’s focus is to drive up standards with the end consumer front of mind
At the FPA our focus is to provide reassurance to customers that they will be treated appropriately and that the funeral they have purchased will be delivered when needed. To do this we continue to drive up standards amongst registered providers; encourage funeral directors work only with registered providers; and encourage customers to ensure they are buying a plan from an FPA registered provider. Continuing this work – with the support of the industry – is how we believe the industry is best regulated and offers customers the best protection. If, ultimately that needs the FPA to be a statutory regulator then we would support that.