Soapbox: Prepayment plans and the wholesale funeral

David Bastock of C. Bastock Funeral Directors gives his opinion on what the FCA’s regulation of funeral plans may mean for the wholesale market

There is actually no such thing as a wholesale cost for a funeral, it’s just a term adopted by the  prepayment industry and foisted upon funeral directors. If a family visited your premises and said  “what’s your wholesale cost for your services because that’s all I’m prepared to pay”, you’d politely tell them you don’t have a wholesale cost. However by default because funeral directors seem to be happy accepting these wholesale funerals, we as an industry have normalised the process and made it acceptable. 

Why is this I wonder? Is the fear of loss so great that we’re prepared to undersell and under value what we do? Is it because with no access to the plan holder, we can’t explain that for the funeral plan they’ve just paid £3500 for, you are only being offered £2500? Is it because if we don’t accept it, that new company down the road will accept it and then it’s potentially a new family connection you’ve lost? 

Is it because you’ve only accepted a few of these plans and it’s a good loss leader to get the family connection and other potential work? I would suggest it’s a combination of all of these things but does that make it right? Does that make it a sound financial decision? Is it a long  term solution and business model? 

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As FCA legislation looms over the prepayment industry, make no mistake the industry is going to reel from the effects, planning companies and funeral directors alike. It is, in my opinion, a long overdue consequence of the industry jumping down the rabbit hole of the wholesale funeral cost. Although this model has been around for quite a while, it was the newer providers who exploited the light touch regulation of the Regulated Activities Order and really went for it. 

Celebrity-endorsed plans pushed hard by cold calling boiler houses, paying huge commissions to anyone who wanted to sell plans. The mainstream providers saw their market share being eroded away and were convinced that doing the same was the right thing to do. 

And into the rabbit whole they all went, each company competing to offer the most commissions, bidding for the contact data of prime postcodes and age groups, and don’t even get me started about the cost of pay per click. If you’re paying anything less than £35 per click for the search term “prepayment funeral plan”, you’ve got yourself a bargain. So who in the end  pays for all this? 

I questioned a provider once about how they can justify such high administration charges, I was told  that it barely covers the cost of all their advertising and promotion and they don’t actually make very  much. Welcome to my world because the £1200 you’re offering me for everything I’m supposed to  do isn’t enough either. 

Will I lose money, no I won’t, but I’m not making any profit. Certainly not  enough for the upkeep of buildings, replacing my vehicles and paying my staff properly. But it’s only one funeral so why don’t I just take it on? Well, because I’m not going to sell myself short, I’m not  going to underwrite the extortionate costs of commissions and marketing. 

It’s all about the numbers, nothing about the people in the plan. Am I being naïve, is this the future? I’m not sure, but what I am sure about is that although I might be able to absorb a small number of the plans every year without any detrimental effect to my bottom line, what happens if this becomes the norm’? What happens if by accepting all these plans this becomes 10, 20 or 30% of my future workload, will the numbers still make sense? 

I think it’s safe to assume that FCA regulation will kick all the intermediary sellers into touch. With commissions gone it just won’t work. What is also going to be a problem for prepayment companies are the administration fees that they take, over and above the on top fee to the plan holder. I won’t  name individuals but one company I know would sell a plan for over way over £3000 , pay commission of £600 to the Will writer then take £400 for their own fees leaving the FD under £2500 to carry out the plan. 

Now, although the commission will soon not have to be paid, the £400 remains. That will be a difficult conversation to have with the potential plan holder. It gets worse, (or better depending on your viewpoint) their fees will probably have to rise as they work harder to get the sale in the first place as all their third party sellers have gone. Food for thought, no? 

Let’s take this further, if one of the bigger players who have sold thousands of plans over the years decides this regulated environment is not for them, what’s going to happen to all those “wholesale” plans? FCA says that they should look to offload their back book of plans to another provider. I’m struggling with this one because why in the world would they take them on? 

All the money was taken upfront in fees and commissions, there is barely enough in the funds to pay for the funeral, never mind ongoing administration. Don’t worry though, the funeral directors who have signed contracts to carry out the funerals will just have to grin and bear it, “we’ll pay them what we can and that will have to do”.  

And do you know what, that’s probably what will happen because funeral directors in the main would not stand by and see a bereaved family suffer any more anxiety at the time. They’ll do it for the family.  A family they have had no contact with up until the point of death, and if they had, would definitely  not have sold them one of those plans. 

The other option is that a funeral group takes on the back book of a prepayment provider and then reallocates all the plans to their own group of funeral directors. That might work, but an awful lot of independent FD’s would lose out, or perhaps have a close escape. Again, depends on your viewpoint. 

What’s worrying is that, whatever happens, the funeral directing industry is about to underwrite this whole thing because in the main, we always want to do the right thing by the family. My question is this, can it actually afford to? The millions, possibly billions of pounds of ‘wholesale’ funerals the  industry will have to absorb over the next few decades will undoubtedly take a financial toll, especially on the smaller firms. If I had a company who had taken on a substantial number of wholesale plans  I would definitely be looking to sever my relationship with that company before the legislation kicks in, get out while I still can, give them notice and thank my lucky stars for a close escape. 

Of course I may have got this all wrong. Funeral directors might be happy with these plans and plan holders might expect to pay a higher administration fee on top of their funeral plan price. In fact they may have no choice, regulation will bring significant costs to the industry which ultimately will have  to be borne by the consumer, the funeral director or both. No more dipping into the trust fund, that’s all stopping until your fund is over 110% solvent. (I like to word solvent, assets in excess of liabilities, very definitive, unlike the term “fully funded”). Some providers might decide that the nominated  funeral director should stand all the costs. Who knows, it’s a proper shake up? 

The irony of this whole situation is that, if they wanted to, funeral directors have the power to stop wholesale funerals overnight. I am yet to speak to another FD who is happy accepting these types of plans, but then maybe I’m just speaking to the wrong ones. So, do wholesale funerals have a place in the FCA regulated environment, only time will tell, but I for one am glad I have never accepted one.

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