The Financial Conduct Authority has set out its proposals on how it will regulate the pre-paid funeral plans sector, including plans to ditch commission payments and permissions to advise on the plans.
In a consultation published this morning (March 2), the regulator laid out how it will move to improve standards in the sector following concerns about how some pre-paid funeral plan providers were operating.
As part of this the FCA said that from July 2022, when the FCA takes on responsibility for regulating the pre-paid funeral plans sector, advice in this market will come under the “advising on investments” permission.
FTAdviser understands that if a firm is recommending specific funeral plans to customers then it is very likely to be advice, and so all firms recommending the plans will be required to hold this permission.
Their clients will then have access to recourse from the Financial Ombudsman Service and Financial Services Compensation Scheme, which some say could push the levies up further.
Anyone giving such a personal recommendation must base their advice on “fair and personal analysis” of the funeral plans market and provide a personalised explanation why the proposed product best meets the customer’s demands and needs.
The FCA stated: “This includes considering all the customer’s requirements and ensuring that the funeral plans they offer are suitable for the customer’s needs.”
Alan Lakey, director at Highclere Financial, said it came as no surprise that the regulator wanted these plans to be treated as investments for advice purposes.
Lakey said: “There has always been a distinction between plans that might pay out (term assurance) and those that will (whole life).
“Funeral plans naturally fall into the second sector so it is no real surprise that the regulator wants them to be treated as investments. This is a natural consequence of the existing rules.
“Those advisers working under ICOB (Insurance Conduct of Business) rules will be debarred and only those advisers operating under COBS will be allowed to advise.”
As with investments advisers will now need to issue suitability reports once regulated advice has been given.
Lakey added: “Suitability letters will be a consequence and, also, let’s not forget that the majority of buyers may fall into the ‘vulnerable’ category.
“A properly set out suitability letter will be essential to protect advisers against potential future claims.”
Boost to profession?
Felix Milton, chartered financial planner at Philip J Milton & Company, said on the back of these rules, advisers will see an increase in requests from clients.
Milton said: “The reason these plans have been so prevalent is that the marketing machine of the larger providers coupled with a large commission of up to £900 for the salesperson has meant that these have been sold to so many people who don’t need them.
“I’ve had several clients ring me and ask for our views on them and when I explained the process that happens on death and the fact that the estate can release money quickly to pay funeral expenses, most realise they don’t need this cover."