In June 2018, the government called for a review of the pre-paid funeral plan marketplace following concerns regarding consumer detriment. There was an initial policy proposal to bring all funeral plan providers under the Financial Conduct Authority (FCA).
The government’s objectives were to ensure that:
- all pre-paid funeral plan providers are subject to robust and enforceable conduct standards
- there is enhanced oversight of providers’ prudential soundness
- consumers have access to appropriate dispute resolution mechanisms if things go wrong
Since that time, the government have deemed through evidence, that there is detriment for consumers in the market and so there is demand for the sector to come under compulsory regulation.
There is now a consultation period for stakeholders and interested parties to put forward any comments and response. This period for responses is until 2nd August 2019.
Providers can currently elect to become registered with voluntary regulator the Funeral Planning Authority (FPA), which means they must ascribe to a certain code of practice. But this is voluntary and does not dictate all providers need to submit to this code of conduct if in the industry.
As demand for funeral plans has increased and so the market has grown, regulation is now seen as necessary. The structure of the market is disparate and has grown to include new arrangements have emerged. As a result of changes it is deemed that the current regulatory framework does not give fair treatment of consumers.
The key areas of concern include:
- The high levels of commission that some third-party distributors could claim in the market, especially as they do not have a stake in the final outcome of the transaction.
- A conflict of interest may arise, whereby third-party distributors may be incentivised to sell plans that offer the highest commission, rather than those which best met the customer’s needs.
- There are concerns over consumer detriment in the use of cold calling or door-to-door selling.
- There are concerns about consumers being misled about the lack of clarity regarding their “contribution towards disbursements” would cover the necessary third-party funeral costs.
- Concerns over occasions where consumers were led to believe that a specific funeral director would provide the funeral service, before the funeral plan had been offered to the funeral director in question.
- Potential disclosures around amount being taken out of the price paid to cover commissions to 3rd party sellers and plan provider admin charges.
- Consumers are not necessarily informed about which services are guaranteed as part of a plan.
Having given careful consideration to the most proportionate policy response, the government has decided that the most appropriate approach to strengthening the regulation of the funeral plan market is to bring all funeral plan providers within the remit of the FCA. However, the FCA will not regulate the activities of the funeral director providing the end service.
The government intends to require funeral plan providers to have FCA authorisation in order to carry out both new (i.e. those entered into after the new regulatory framework comes into force) and existing (i.e. those that were entered into before the new regulatory framework comes into force) funeral plans. This will ensure that consumers of existing funeral plans will also benefit from the added protection of FCA regulation, in respect of the administration of those contracts, and ensure that the FCA can take a coherent approach to the regulation of the market.
Regulation of Intermediaries
The government considers that it is essential that intermediaries who market, sell or promote funeral plan contracts are brought within the scope of the amended regulatory regime, given their prevalence within the market, and their role at the point of sale.
Therefore it is intended to enable intermediaries to become appointed representatives. An appointed representative (AR) is an individual or entity who undertakes regulated activities under the responsibility of an authorised firm. This firm is known as the AR’s “principal”.
The intention is to put in place an 18-month implementation period from the point at which the amending legislation is made. Firms will have around 12 months to familiarise themselves with the new regime once the FCA has finalised its rules for the sector.
All funeral plan providers who intend to carry on administering and/or selling funeral plan contracts will need to apply for FCA authorisation during the implementation period.
The government’s proposal to bring funeral plans within the remit of the FCA would greatly enhance consumer protection in the pre-paid funeral plan market.
There are also likely to be reputational benefits for the funeral plan industry as a whole as a result of the fact that increased regulation will improve service standards. This will likely drive increased consumer confidence in the sector, which may result in increased sales in the market, once regulation has been introduced.
Amy Peters, Head of Operations BTWC comments “As anticipated, regulation of the Funeral Planning sector is now gaining pace and this will certainly prove to be of benefit to consumers. As a trade body, the FPA is not well enough equipped to meet the rigour of a full regulatory framework but taking a measured approach within the remit of the FCA will be vital to maintain competition in the marketplace in order to maintain consumer choice.
It's also important that this announcement should not be viewed in isolation. The inflationary annual increases seen in funeral costs over recent years has driven the funeral plan market and perhaps the outcome of the current CMA review in respect of this will also shape the future of the funeral plan sector.
As ever, BTWC is keen to take a balanced view and has a growing panel of Funeral Plan providers that advisers and clients can consider. We anticipate that this will continue to be the case for at least the next 2 years until the legislative changes proposed are fully implemented.”