Insuring Change has dubbed unregulated pre-paid probate plans as the “reincarnation of the worst of the pre-paid funeral plans market on steroids”, while the Financial Conduct Authority (FCA) has warned customers about buying products in the market.
The FCA issued its warning about the pre-paid probate plan market and “strongly” advised customers to “consider carefully” whether the products were appropriate.
The regulator warned it had seen increased marketing of pre-paid probate plans in recent months, including from firms and individuals associated with funeral plan firms that it did not authorise, and whose customers lost money when they collapsed.
Consequently, the FCA warned consumers about the risk of losing money in the event their plan provider collapsed due to them not being regulated.
Such consumers would not be protected by the Financial Services Compensation Scheme and should the company fail there was no guarantee customers will receive their money back, the FCA highlighted.
In England, Wales and Northern Ireland, probate is the legal right to deal with someone’s property, money and possessions connected to their estate when they die. It is usually required when the person who died owned property or significant assets in their own name. The equivalent in Scotland is called Confirmation.
‘Worst of pre-paid funerals on steroids’
Speaking to Health & Protection, Ruth Gilbert, partner at life cover consultants and campaigners Insuring Change, echoed the FCA’s serious concerns about the sector.
Gilbert (pictured) emphasised such marketing looked like a “reincarnation of the worst of the pre-paid funeral plans market on steroids”.
“Unsurprisingly, as the FCA notes, it’s also driven by some of the same people no longer able to operate the funeral plan business,” Gilbert said.
“It includes all of the same risks along with the addition of two worse elements. One is the possibility of loss of the main thing needed – the will. The other is the likely mismatch of what is paid for compared to what will be needed or wanted when the time comes.
“At least everyone knows some sort of funeral will definitely be needed and mismatch of funding shouldn’t be hugely far off. But here the mismatch can range from the pre-funding not being necessary at all, or being inadequate by several thousand pounds.
“I don’t even see a genuine need for taking this financial gamble to ‘lock-in costs’,” she added.
Meanwhile Simon Cox, director at consultancy Funeral Solution Expert, told Health & Protection that he welcomed the FCA’s warning, having previously sent evidence about their concerns to the regulator, national media and other trade press.
“The evidence illustrated how some of those responsible for the poor practice in the funeral plan sector had jumped over the regulatory wall and into probate trying to establish pre-paid probate,” he said.
“So it looks like our warning alert to the FCA was heeded.”
Commission fee concerns
While the FCA conceded that when designed and marketed appropriately, pre-paid probate plans could help people organise administration arrangements ahead of their death, as it does not regulate pre-paid probate firms or the pre-payment of probate costs, there are no regulatory protections in place for customers.
The regulator further warned that commission is often included in the fee customers pay which increases the price of the plan.
It added as there was no commission ban on the sale of pre-paid probate plans, as there is for funeral plans, customers’ money may not be safe if the firm should fail as there are no rules requiring the money paid into plans to be held in trust or backed by insurance.
Though the regulator also points out that while the Financial Ombudsman Service cannot help resolve any complaints, if customers think a business has broken the law or acted unfairly, they can report them to Trading Standards.
Consequently, the regulator issued a number of recommendations for customers including:
- Be alert to any cold calls received about pre-paid probate plans. High-pressure sales tactics, such as cold calling, can result in taking out products which are not suitable for customer needs.
- Even where plan operators choose to use a trust to manage assets, those trusts could still invest in unsuitable investments, putting the customer’s future benefits at risk. The regulator added it has seen cases where this happened with funeral plan trusts before its regulation of the sector began last year.
- The fee for a pre-paid probate plan is usually based on the value of the customer’s estate when they purchase the plan. However, the value of the estate may change over time.
For example: They may receive an inheritance after they have purchased the plan, which would increase the value of their estate. This would require their family to pay additional probate fees after their death.
The customer may need to pay for care costs, which would reduce the value of the estate. This could mean that probate is not needed, and their family could then find that the probate plan they had paid for was not necessary, and therefore worthless. - Probate is not always needed, as some banks will pay out a certain amount without the need for applying for probate. Customers should speak to their bank about the amount they will release on the death of an account holder.
- Pre-paid probate plans require the customer’s executor to use a specific nominated professional. This means they will not have any choice about using someone who has been recommended to them.
