JEFF PRESTRIDGE: The prepaid funeral market is on hold
JEFF PRESTRIDGE: The market for prepaid funeral plans is on hold, so don’t buy any plans until new rules are in place
The prepaid funeral market is on hold. Unless the industry can find a quick fix for the hopeless case that is Safe Hands Funeral Plans, I fear consumer confidence will be shattered. New blueprint sales will fall off a cliff – and rightly so.
Just over a week ago, Safe Hands plunged into administration, jeopardizing the projects of some 46,000 customers. Plans that customers, mostly seniors, had purchased in good faith and expecting the product to deliver on its promises within the time frame. That is to say, a funeral they had chosen and paid for in advance.
Unfortunately – no, shockingly – the plans won’t deliver. In a letter sent to clients a few days ago, the firm’s administrator, FRP Advisory, did not hesitate. All customers, he said, should consider their plans “terminated” with immediate effect. Although the clients’ money should have been paid into a trust fund for the sole purpose of providing the promised funeral, FRP admitted that there was not enough in this fund to meet all the promised funerals. Why?
In good hands? : Regulation of the prepaid funeral market is to be taken over by the Financial Conduct Authority at the end of July
Reading between the lines, it looks like the fund has suffered a double whammy. Until FRP came on the scene, it was overseen by Sterling Trust Corporation, based in Weston-super-Mare, North Somerset. First of all, not all of the clients’ money went into the fund. A big chunk was used to pay for sales charges (large commission payments to third parties) and a range of other charges to pay for general business costs.
Thus, the fund managers had their work cut out from the start by being required to make up for this deficit by the prudent investment of the money housed within the trust. This brings us to the second part of the blow – it appears that the assets of the trust were not well enough managed to meet the ever-increasing funeral costs.
What I find extremely disturbing is FRP’s comment that ownership of some of these assets (stocks, bonds, cash, real estate and loans) is “complicated”. Therefore, it is unclear which of these investments can be made to benefit plan holders. It is a scandalous situation. Who else could they belong to?
The only glimmer of hope for Safe Hands customers in the admin’s letter is the possibility that all plans will be transferred to another provider. It’s a transfer that big industry players such as Dignity and the Co-op must help facilitate – or trust across the industry will be shattered.
Regulation of the prepaid funeral market is to be taken over by the Financial Conduct Authority at the end of July. Indeed, it was the FCA’s requirement for all diet providers to seek clearance before that date that brought the Safe Hands scandal to the surface. I’m sure other providers will go into administration in the weeks and months to come as their trust funds are deemed unsuitable.
Some experts have questioned the business model of Capital Life, a Wilmslow, Cheshire-based provider set up by former Safe Hands employees. He’s been at the forefront of paying hefty commissions to third-party sellers, which begs the question: how financially sound is his trust fund? Capital Life did not answer my questions.
Last week, I spoke to many readers who are anxiously waiting to find out if their Safe Hands funeral plan will be honored by another provider. They are salt of the earth individuals – like Mary Hunt, 80, from Larkhall, South Lanarkshire, and Noreen and Derek Round from Willenhall in the West Midlands.
They rightly feel cheated and have contacted their local MP to see if they can pressure the government to make up for their losses. Funeral plans support group Safe Hands has also set up a page on Facebook. The Mail on Sunday led the way in reporting on this scandal. We won’t give up until justice is served. In the meantime, don’t buy a funeral plan until FCA regulations come into effect.