Regulation of funeral plans could revive market

Regulation of funeral plans could revive market

Regulation of pre-paid funeral plans by the Financial Conduct Authority (FCA) could give advisers greater confidence in the product, despite concerns about possible side-effects, it has been claimed.

HM Treasury has consulted on bringing pre-paid funeral plans under the remit of the FCA, Financial Ombudsman Service and the Financial Services Compensation Scheme because they exhibited the characteristics of financial products such as insurance.

Mark Moran, director of direct sales at funeral plan provider Golden Charter, said he had been seeing a growing interest in the product from advisers but he acknowledged there was some scepticism.

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He said: "The scepticism comes from people who have not had the chance to understand the product.

"We have been really disappointed at the lack of [interest] from some advisers who have bought into the first impression they have had of the product.

"When we get a chance to explain it, people will understand how it works. The biggest issue is the lack of knowledge in the market, and as an industry we can take a share of the blame for that.

"If they were regulated by the FCA it would become a more complicated process but in the longer term people will then judge funeral plans on their proper merits and be able to do proper due diligence on a consistent basis, giving them more comfort."

Mr Moran said one of the big problems with pre-paid funeral plans being regulated by the FCA was that they are often sold by funeral directors, as well as by financial advisers.

He said: "What will happen to funeral directors if the sales process becomes regulated? Would we expect a funeral director to go through a fact find? If it becomes a more laborious process for something people can see as peripheral, that might put them off."

According to figures from the Funeral Planning Authority, demand for pre-paid funeral plans has grown significantly in recent years, with sales in 2017 at 207,000 new plans, up by around 245 per cent when compared with sales in 2006.

This growth has led the Treasury to look into regulating the sector, bringing it under the remit of the FCA.

But one of the criticisms of this proposal has been that it would require the FSCS to compensate for the failure to provide a service, rather than for the loss of invested funds.

This could mean that the FSCS would effectively have to provide funerals for clients of companies which went into default.

Pre-paid funeral plans work by insuring the buyer against inflation, allowing them to pay for their funeral in advance, either in installments or in one go, with the money being put in a trust until it is needed.