Your IndustryMay 17 2022

Advisers split on funeral plans coming under FCA remit

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Advisers split on funeral plans coming under FCA remit
Pexels/Pavel Danilyuk

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.

As part of its final rules on how it will regulate advice on funeral plans, there will be a ban on commission payments and changes to appointed representative permissions.

Tim Morris, IFA at Russell & Co Financial Advisers, said it is not an area he is involved in and he also does not plan to be in the foreseeable future.

“While I advise on personal protection, I don’t tend to advise on general insurance,” he said.  

“Saying that, now this is within the FCA’s remit, I will certainly consider it as part of a holistic financial plan.”

“Provision for funerals should always be discussed by the adviser in the same conversation we have about ensuring wills and powers of attorney are in place" Tom Beckett, associate director and senior investment adviser at Salisbury Financial Adviser

Morris explained that while some clients may prefer a whole of life policy to cover funeral costs, a specific funeral plan could prove a more cost-effective option.

Likewise, Cura Financial Services managing director Kathryn Knowles, said her firm began signposting to a funeral plan provider as part of its services about a year ago.

“A month or two ago they contacted us and said that they would no longer accept referrals from advisers, around the time that the FCA announcement was made,” she said.

“I'm not sure why that decision was made, or if it is something that other funeral plan providers have done too.”

Knowles said her firm does not have an active funeral plan that it can offer anymore. 

“I think that this is an area that should be regulated by the FCA as it does fall under long-term financial planning, just as whole life insurance does,” she said. “I feel that advisers should have a broad range of areas that they can signpost to, that do not fall under their own remit, and being able to direct clients to trustworthy funeral plan providers is something worthwhile (if needed). 

“Just like many advisers are building a network of people that they signpost clients to for mortgages, insurance, pensions, investments, the availability of regulated funeral plans would be welcome.”

However, while it was welcomed by some advisers, others were a little more sceptical and had their reservations.

A limited market?

Thameside Financial Planning director Tom Kean said he “certainly will not be offering this” to clients. 

“I’m not a fan of any kind of 'plans' when a good old fashioned savings pot is normally cheaper and easier. Why not just use an Isa instead? As for the FCA overseeing this, I’m looking forward to seeing how they will do it.”

Kean explained that although he can see the logic in this, he questioned where it ends.

The FCA’s strategy will focus on making sure that funeral plans offered to consumers meet their needs while offering fair value and that firms have sufficient resources to ensure they deliver the funerals for which consumers have paid. 

The regulator said it will aim to achieve these good outcomes for consumers through “rigorous supervision of firms and the market”. 

But financial adviser Tom Beckett said funeral plans have a limited market.

He argued that these tend to be suited to clients who either wish to have as much control over their funeral as possible, or to those who may not have suitable other provision to fund their funeral and wish to ensure their relatives are not left to pay the final bill. 

“The latter is less relevant to our clients generally, since they have more than sufficient funds to pay for their own funerals,” he said. 

“Provision for funerals should always be discussed by the adviser in the same conversation we have about ensuring wills and powers of attorney are in place. The drawback for the adviser is that funeral plans are not an everyday recommendation.

“Advisers would have to charge a fee to provide formal advice as commission is due to cease at the end of July.”

Beckett said that with many funeral plans on the market, each with different features and benefits, an adviser would need to spend a great deal of time researching suitable providers, and keeping up to date, at a disproportionate cost to the client.

“I greatly welcome the FCA stepping in to regulate funeral plan providers. It is an advice area which is primarily targeted at vulnerable, older clients and the first step of authorisation should ensure any companies not fit for purpose are removed from the market,” he said.

“Until now, a company could set themselves up for as little as £20, shielding behind an address used by thousands of other companies and armed with a beautiful website can generate millions in revenue with no real oversight. With FCA authorisation, the consumer can hope that any businesses trading after July 29 will be deemed fit and proper.”

He explained that after this date, the FSCS will protect funeral plans, provided the firm is authorised. 

“This should provide greater peace of mind, both to the client and no doubt the adviser,” he said. 

“The removal of commission is a positive step in that any adviser making funeral plan recommendations post regulation should have no bias towards a particular provider and the advice should be the best for the client, balancing the individual features of the plan and the likelihood of the provider being there when they are needed.”

However he added that he can see the advice market contracting as the time and costs involved for the adviser could be disproportionate to the actual cost of the plan. 

“I would hope that funeral plan costs reduce in line with the average commission paid previously, to help consumers with advice costs."

In March, pre-paid funeral plan company Safe Hands fell into administration putting around 45,000 policyholders at risk.

The Wakefield-based business’ collapse followed its decision to withdraw from the FCA’s authorisation process on February 15 ahead of incoming regulation for the funeral planning sector.

Beckett added: “Following Safe Hands going into administration, I feel there needs to be greater public awareness by the FCA to alert funeral plan holders of the upcoming changes. 

“Consumers should be encouraged to check their provider has at least applied for FCA authorisation and if they find their provider hasn’t applied, or has withdrawn their application, further guidance should be given. The FCA has a dedicated page, but unless the consumer is signposted to it, they remain unaware.

“Based on my research into some of the providers who have yet to apply for authorisation, I have grave fears for many thousands of plan holders.”

sonia.rach@ft.com

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