Article by Phil
The Financial Conduct Authority (FCA) has finally come to a decision about the regulation of pre-paid funeral plans sales. As most people expected the FCA have decided that the sale (or more accurately the recommendation) of a funeral plan will come under the banner of “advice” which means that it will fall under the umbrella of advising on investments.
The advantage of this means that from July 2022 when the FCA takes over regulation, customers will benefit from the protection of both the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS). That’s surely a good thing isn’t it?
Well, it means that customers will only be able to get advice on a pre-paid funeral plan from a regulated financial adviser, rather than the likes of a funeral director which they do today. Unless of course funeral directors decide to seek regulation. But consumer protection will come at a cost. The FSCS has said that it will apply a levy to firms offering regulated funeral plan advice based on the percentage of their turnover that “sales” represent. That means the industry will pay and one would imagine that these costs will be passed on to the customer?
It’s no surprise that regulation is being applied to the sector. For too long there have been concerns about commission payments being made to introducers of up to £1000. The industry also lends itself by its very nature to vulnerable clients who the FCA are increasing looking to protect. Commissions will be banned under FCA regulation and advisers will need to be remunerated for their advice by charging fees.
Some market analysts believe that the number of funeral plans will falls dramatically as a result of regulation. The argument is that many clients of financial advisers already have sufficient assets to be able to cover funeral expenses, but this ignores those customers who buy plans who aren’t clients of financial advisers (which is the majority). It’s not clear how many of these will have sufficient assets to cover funeral expenses, or the arrangements in place to allow for easy access to funds at their time of need. It will soon be an adviser’s job to undertake fact finds to determine whether a funeral plan is the base course of action.
If you are looking for protection then its probably worth waiting another year to put your plans in place. On the other hand, it could be cheaper to arrange your plan now before the expected price increase come into play. We expect to continue to offer advice on funeral plans as part of our estate planning advice services which many of our clients have taken advantage of.
