As we find the Later Life Planning sector in a flurry of not altogether positive publicity regarding funeral plans following the recent episode of “Tonight: Pay Now, Die Later” on ITV1, we thought it worthwhile to note our views.
The funeral industry, whether as a funeral director or funeral plan sales company, has grown and evolved over recent years with prices increasing year on year, and a proliferation of new funeral plan companies coming into the market. As we explored at our recent BTWC conference, the CMA review into funeral directors alongside the government review of pre-paid funeral plans is timely given that the funeral industry is estimated to be worth £2 billion along with £4 billion in asset held under trust in relation to existing prepaid plans.
The current regulatory framework is governed by the Financial Services & Markets Act 2000 (Regulated Activities) which exempts a funeral plan provider from regulation where:
- Money is applied towards a contract of whole life insurance on life of client
- Clients money is held in trust managed by an authorized fund manager with actuarial oversight
Curiously recent media coverage does not seem to be primarily concerned with how funeral plan funds are regulated, but who profits from the plans and how much the client understands the product.
In terms of funeral plan prices, the plan provider will make a commercial agreement with funeral directors for a trade fee to provide their funeral plan offering to the client. This will be lower than the standard fee charged by the funeral director to enable a level of profit to be retained by the funeral plan company and commissions payable to introducers. The cost of a funeral is approximately £8,000 (including elements such as limousines, funeral notices etc), a price many can't afford in one lump-sum when the time comes.
Unless expressly stated, funeral plans will generally include a contribution towards disbursements with an industry average of £1,200. These are to cover aspects such as cremation fees, doctors fees etc which fluctuate across the country hence the client should always be made aware that there may be additional fees in relation to these elements after they have passed but they are anticipated to be nominal.
As with any advice, product or commercial solution proposed to a client it must be clearly explained to the client what the key features are, advantages .v. disadvantages and alternative options. What may be right for one person may not be right for another.
Here at BTWC we continue to closely monitor our affinity partners in the area of Funeral Planning and will be very interested to see what the results are of the CMA and Government reviews into the sector. We believe pre-paid funeral plans can be beneficial to clients as long as they are clear from the start on what is covered in their plan, the price and who the provider is. Transparency is key, and the current reviews will no doubt exemplify the need for this.