Pre-paid funeral plans are finally and at long last being regulated following legislation passed by Parliament.
As of July 29, the FCA (Financial Conduct Authority) will regulate these plans and is authorising 26 providers. It is understood that together these firms hold about 1.6million plans, which makes up 87% of the market.
Regular readers of this column may recall we have been opposed to these things for quite some time and our advice has always been ‘don’t buy one’.
There may be rare occasions when they work, but they favour the sellers and the agents, who receive around £900 commission on each one sold – it’s unlikely the well-being of the customer is considered in that scenario.
The FCA has said regulation will bring higher standards and boost consumer protection.
The new rules ban funeral instalment plan products that do not guarantee a funeral. Cold calling is also banned and new standards on advertising are being implemented.
Commission payments to intermediaries such as funeral directors, have been banned to ensure products represent fair value.
Many of these plans have been sold to so many people who don’t need them.
We have had clients call us to ask for our views on them and when we explain the process that happens on death and the fact the estate can release money quickly to pay funeral expenses, most realise they don’t actually need such cover.
It seems likely the proliferation of these things out there will fall as people realise that they need them as much as they need a chocolate teapot.
The banning of commission will no doubt cause much wailing and gnashing of teeth, but financial products should be sold for the right reasons to benefit the customer.
A good adviser is unlikely to advise one of these policies to their clients, since a typical client probably has assets sufficient to cover funeral costs anyway.
If you are likely to pass away with £5,000 to £10,000 in your bank account, these plans are wholly unsuitable and poor value for money.
As ever, if in doubt or you wish to discuss this issue or any other aspect of financial management and investment, just get in touch.
