FCA unveils radical changes to funeral planning sector

The ICO’s investigation into the funeral firm Avalon and the lead generation businesses Plan My Funeral and Impressia in 2019, uncovered that the funeral planning sector had a lead generation and boiler room sales problem. At the time, The Daily Mail covered the issue here.

The FCA stepped in last week and unveiled its latest consultation paper; it is preparing to bring the whole prepaid funeral planning sector under its direct - supervision.

We’re familiar with these rather dry looking consultation documents, but this one was surprisingly explosive!

Here are the highlights:

A ban on commission paid to intermediaries
To put this in context, a funeral plan is sold to a consumer for around 3-4k and a commission of between £500-£950 is paid to the firm selling the product. When you consider that advertising costs are much lower than other sectors like Mortgage and Insurance, it's no wonder that some firms have looked to make a quick buck. The FCA’s view appears to be that this level of commission encourages bad behaviour and they intend to limit it.

Cold calling will be banned
Under the proposed reforms potential customers can ONLY be contacted if they initiate the process and make an express request to be contacted, to mirror other sectors like pensions and investments. The FCA appears to recognise that all of the issues uncovered by the ICO didn’t go away with an ICO fine and many of the same protagonists responsible for poor practice simply set up new firms and started again.

Changes to solvency requirements for funeral plan providers.
One of the big question marks hanging over the whole funeral planning sector has been the concern that many plan providers can’t afford to pay out on every plan they’ve sold to date. In this latest consultation document the FCA proposes that a funeral product provider can only deduct surpluses (i.e. profit) from its overall trust if the trust’s solvency level is above 110% and this is signed off by the trust actuary. This would go a long way to limiting short term growth but would ensure longer term stability and consumer security.
What does all this mean? 

Are there opportunities for legitimate lead generators and good salespeople? Put simply, yes.
If these proposals are passed, this is what we think will happen:

1. Funeral plan providers and intermediaries will actively seek out compliant lead generators.They know they will now need to work with firms who can certify that they comply with the new rules. There is a significant opportunity for good lead generators to work with the brightest and best funeral firms, as they prepare for these changes.

2. It's going to be more important than ever to be directly FCA authorised if you want to sell consumer finance leads in 2021. We think that the FCA are using reforms in funeral planning as a dry run for the sort of changes it wants to make to every financial promotion and sector in the UK.

3. These proposals will drive out the cowboys from funeral planning because these reforms will treat funeral planning like any other regulated product. They will encourage Life Insurance brokerages to add funeral products to their product lists because funeral product providers will seek alliances with directly authorised firms.

This article was part of March's edition of The Leader, Contact State's monthly newsletter which you can read here.

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