The government is proposing to bring regulation of the pre-paid funeral plan industry into the remit of the Financial Conduct Authority, amid evidence of consumer detriment in the market.
In a consultation published by the government this weekend (June 1) HM Treasury proposed plans to introduce compulsory regulation of the sector, following a call for evidence last summer which detected high pressure sales tactics used by plan providers and their intermediaries.
The government noted these tactics were often driven by high commissions in the market, leading to conflicts of interests when intermediaries were incentivised to sell funeral plans for those providers who paid the most in commission.
Cold calling was found to be of a "particular concern" in the funeral planning industry, which is currently voluntarily regulated by the Funeral Planning Authority.
HM Treasury stated it viewed FCA regulation as the most effective response to the market's problems because the financial regulator has a track record of taking "strong regulatory action where necessary", with experience and rule-making powers which would provide a "solid basis" for strengthening the regulatory framework for funeral plans.
The FCA already regulates providers of products which compete with funeral plans, such as guaranteed over 50s life insurance.
Over 50s plans pay out a lump sum on death. While they are typically purchased to cover funeral expenses, the money from the claim can be used for something other than the funeral.
The government said it was "essential" intermediaries who market, sell or promote funeral plan contracts are "brought within the scope of the amended regulatory regime" and stated it intended to enable intermediaries to become appointed representatives in the market.
Under this regime principal firms will be required to pay fees for commission that is paid to appointed representatives.
Suzanne Grahame, chief executive at funeral provider Golden Charter, said the decision for the FCA to regulate the industry was a "positive step forward" for funeral directors, financial intermediaries and the customer.
Ms Grahame said: "This is an announcement we have been requesting and preparing for since the start of last year.
"Golden Charter has been leading the way in ensuring that our funeral plans can only be purchased through highly trained subject matter experts, with our approach to third party sellers requiring them to be FCA regulated or members of a recognised professional body.
"The strong relationships we have sought and developed with our adviser networks is testament to that approach."
She added: "While we still do not yet have the full information on how the new system will operate, the proposal published describes in some detail the close parallels to be drawn with other FCA regulated markets such as the insurance sector. To that extent this is largely a known model and one we have been planning for since 2017."
Alan Lakey, director at Highclere Financial, said the pre-paid funeral sector was an area in which there had been "problems".
He said: "Unlike financial advisers they are enabled to cold call and as may of the potential purchasers fall into the ‘vulnerable’ category there is potential for a bad outcome.
"Many consumers are unable to differentiate between a funeral plan and a life insurance policy and consequently may make the wrong choice.
"Also, the Funeral Planning Authority state that if a plan provider becomes insolvent its members will examine ways of delivering the funeral. This falls short of a promise and its members are under no obligation to provide assistance."
Mr Lakey added: "Some advisers work in this area but I imagine most will prefer the known outcome of writing a life policy in trust.
"Whilst I’ve never been a fan of the financial services regulation that we’ve endured for the last 31 years it does seem foolish to not include such transactions within the FCA’s remit."
rachel.addison@ft.com
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