The Financial Conduct Authority has set out its final rules on how it will regulate advice on funeral plans, including a ban on commission payments and changes to appointed representative permissions.
In a 309-page policy statement, published this morning (July 5), the regulator laid out its final rules for funeral plan providers and advisers as it moves to improve standards in the sector following concerns about how some providers were operating.
From July 2022, the FCA will take on responsibility for regulating the pre-paid funeral plans sector, with advice in this market falling under the “advising on investments” permission.
This will mean 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.
As part of its rules, the FCA has kept its proposals to ban commission payments to stop any conflicts of interest or poor outcomes.
Instead, advisers will only be able to be paid via direct fees from clients.
The ban faced criticism by some respondents with concerns that it could see some firms leave the market or could adversely impact poorer clients who could not afford to pay a fee for the firms advising or arranging services.
But the FCA said its rules did not prevent intermediaries from operating in the funeral plan sector, as they can charge fees payable directly by the customer.
It stated: “There are some intermediaries currently selling funeral plans alongside other services for which the customer would be likely to pay a fee (such as will writing or estate planning).
"None of the respondents put forward any reasons why charging an advice or arrangement fee, in the context of a fee for those other services, would not be viable.”
Considering arguments that clients would be unwilling to pay a fee in some cases, the FCA said this supported the ban because commission is still paid by the consumer but included in the headline price rather than being paid separately.
It stated: “That respondents believe consumers would not pay fees to some third-party intermediaries supports our view that these intermediaries are unlikely to be providing a service that is beneficial to consumers.”
But the FCA has backtracked on proposals to force appointed representatives carrying out funeral plan business to hold the customer function (CF30).
A CF30 holder is an 'approved person' who has regulatory permission to perform the 'customer function' at advice firms.
Respondents had raised concerns that this requirement could drive some of the smaller intermediaries out of the market, and would limit choice and reduce competition.
The FCA will also ban cold-calling in relation to funeral plans and set new standards on advertising to ensure plans are sold fairly.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “Funeral plans should provide customers with comfort and certainty that their affairs are in order.
“Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations.
"We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it."
He added: “As we take over the regulation for this market, we will be rigorously assessing firm’s fitness to operate. Firms must now plan for this new regulatory regime or prepare to leave the market in an orderly manner.”
FSCS compensation
The FCA also announced a further consultation looking at the compensation and help available to clients in the event of a firm failure.
The FCA previously proposed that clients will have access to the FSCS and Fos from day one in the event that they are given negligent advice or the firm fails without paying out its obligations.
The compensation limit for funeral plan claims is set at £85,000, the same as investment claims.
However, as the average cost of a funeral plan is typically between £2,500 and £5,000, the FCA said it is very unlikely that claims will exceed this limit.
As part of its new consultation, the FCA is looking at changes to the rules so that the FSCS may secure continuity of funeral plans as an alternative to paying compensation.
The FCA stated: “Continuity would be achieved either by securing or facilitating a transfer of existing funeral plan contracts to a new regulated funeral plan provider, or by securing the issue of new funeral plan contracts by a new regulated funeral plan provider, as an alternative to a payment of compensation.”
This would reduce the potential impact on firms who pay towards the FSCS levy.
The consultation closes on August 31.
amy.austin@ft.com
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