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.