The following is an open letter to the estate planning profession, submitted to be published by Prepaid Probate Plans Ltd.
We are Prepaid Probate Plans Ltd, newly formed and established in early 2022, to work in tandem with the legal profession to bring peace of mind and fair value to customers. Our senior management team has more than 50 years of collective experience in the estate planning and funeral planning sectors, and we unwaveringly support the campaign for better protection for customers.
We have read with interest the recent postings on social media by various members of legal-self-regulated organisations and their supporters, regarding prepaid probate. It is quite a hot topic. Most commentators are extremely critical, and in all probability, with exceptionally good justification. We have also read the responses from one of the firms in this new market and these responses seem to have only served to entrench the opposition, and rightly so.
Reviewing most of the current prepaid probate plan offerings, it is extremely hard not to disagree with the opinions aired and the initial calls for a ban. One cannot fail to shiver at the high and unjustified pricing, the excessive commissions, the dreadful cancellation charges, the grossly unfair Terms and Conditions, and the lack of transparency on some of the most fundamental aspects of probate. It is abundantly clear, in most instances, lessons have not been learnt.
But is an overall ban the right solution? Or is there an alternative?
First, let’s look back at the funeral plan market that prepaid probate is being compared to.
Background to the funeral plan market
Following an informal consultation with stakeholders by HM Treasury, the government concluded that the then current framework of self-regulation was not sufficient, the regulatory framework that was developed for the sector in 2001, remained unchanged.
The government then launched a call for evidence to aid in the design of a more appropriate regulatory framework. Overall, the government’s objectives were that any regulation of the sector should seek to ensure that:
- all prepaid funeral plan providers are subject to robust and enforceable conduct standards
- there is an enhanced oversight of providers’ prudential soundness
- consumers have access to appropriate dispute resolution mechanisms if things go wrong
The prepaid funeral plan market is going through a major and inevitable upheaval following the decision by HM Government to appoint the FCA (Financial Conduct Authority) to regulate the previously unregulated sector. It is not the advent of FCA regulation causing the upheaval. What is causing the upheaval is the identification and closure of the minority of bad players, who were the root cause of customer detriment, and who were not members of the FPA.
Role of the Funeral Planning Authority
Approximately 95% of the prepaid funeral plan sector was voluntarily regulated by the FPA, a self-regulatory body for the sector.
The FPA maintained a Code of Practice with which registered providers had to comply with. This Code of Practice included standards on:
- Conduct – providers must act in a dignified manner, must not make unsolicited visits or telephone calls to potential customers, and must not make misleading comments about the appropriateness of any funeral plan
- Marketing and advertising – providers’ marketing material must be in good taste, must not make unsubstantiated claims, and providers must give employees and agents training and written guidance on sales practices
- Information – the FPA sets out all information that must be disclosed to customers, including costs and charges
- Contracts and documents – providers must give consumers a written contract setting out terms and conditions
- Plan funds – the FPA sets out how registered providers should handle customers’ payments, aligning with the exemption criteria in the RAO
- Complaints and disputes – the FPA set out high level processes for handling complaints which providers must adhere to.
This Code of Practice was not legally binding, and the voluntary nature of its jurisdiction meant the FPA could not prevent firms from trading outside of its membership. However, the FPA reviewed registered providers’ compliance with the Code on an annual basis and could terminate membership, which may have had reputational consequences for firms, or levied a fine where a firm failed to adhere to its principals.
The FPA also maintained a pledge to customers by which, in the event of the insolvency of an individual provider, other providers would examine ways in which the FPA could assist in arranging the delivery of the funerals for customers of the insolvent provider.
FCA (Financial Conduct Authority) Regulation of funeral plans
Almost 100% of FPA members are now successfully authorised and regulated by the FCA or are in the process of transferring their customers plans to another former FPA member, who themselves are now authorised by the FCA. Were it not for one firm, there would not have been any customer detriment at all relating to former FPA members.
This is not to say that formal FCA regulation was not required, it was. It was needed to address the firms who were not members of the voluntary FPA scheme, and not subject to the FPA Code of Practice, almost all of whom have failed to become authorised by the FCA. So, what does this tell us? It tells us that the self-regulatory FPA model was a successful forerunner to formal FCA regulation, and that firms who were not members of the FPA were the primary root cause of most of the customer detriment.
You may ask, why did one solitary FPA member firm not become authorised by the FCA, and how and why was there so much customer detriment? The Auditors and the Actuary of that firm were reliant on information provided by the FCA regulated Fund Manager. This is subject to an ongoing investigation by the Administrator. As the investigations are ongoing it is inappropriate to speculate, however, it is evident that the FCA regulated Fund Manager was recently fined more than £2m on other matters and facing a possible criminal investigation. The Fund Manager has subsequently gone into Administration. In this instance, it would be unfair to criticize the FPA for the actions of a business regulated by the FCA.
The FCA have stated that, near to 90% of existing funeral plans now under regulation are held by former FPA firms who are now authorised by the FCA. If we are to learn lessons, then this is a crucial factor, which cannot be ignored. An initial funeral plan ban by the legal-self-regulated trade bodies may not have prevented the outcome we have all just witnessed. However, it may have prevented the near 90% of good transactions, restricted consumer choice, and stopped the drive for regulation. A commitment to high standards and Fair Value from the start may have prevented the substantial customer detriment.
Does a ban help?
It may take many years, or even a decade or more for the Treasury to agree to regulate probate plans. Banning sales could prevent regulation happening at all, or certainly delay it, without a market there is nothing much to regulate. Prior to statutory regulation – plans will still be sold – so in the meantime what do we do to protect customers now?
As the FPA clearly demonstrated, a self-regulatory organisation can protect customers and promote high standards and provide its members with resources to support them in delivering those high standards, for plan holders and bereaved families. Similarly, a ‘prepaid probate self-regulatory organisation’ could oversee standards and conduct, prior to statutory regulation, and become the standard bearer within this sector (like the FPA/NAFD in funeral planning; or the SWW/IPW/BEST in estate planning)
So why not establish a Probate Planning Authority (PPA)? It would need to be independent of firms operating in the probate plan sector and be run and financed from membership subscriptions. An organisation could be established by one, or a combination of, or all of the SWW, the IPW and the BEST Foundation, working together.
Why would you support self-regulation?
Funeral directors originally conceived Funeral Plans to help their customers plan, to help them obtain peace of mind, to help them fix costs, and provide good products and fair value. By offering Fair Value, funeral directors then obtained the long-term security of future market share. This may continue to be the shape of things to come, funeral directors working with in-house funeral plans, or in-partnership with independent funeral planning companies.
The principle of securing future market share could also be applied to probate firms; however, regulations do not permit regulated law firms to take this type of prepayment, and the cost of establishing and administering an independently managed trust fund could be beyond most individual firms.
Probate firms could obtain the benefit of long-term future trade by joining the panel of one or more reputable and well-run self-regulated prepaid probate plan firms. Trade bodies have an opportunity to lead, by setting standards and by adopting the successful FPA model; to learn from history and help drive out unethical distribution practices and bad products, from the start – further protecting the customer.
On the way to statutory Regulation
Some funeral plan firms who failed to become authorised by the FCA have now turned to probate plans. This does not mean probate plans are bad per se. Rather, could it be that some firms are simply not acting on the lessons learnt from the regulation of Funeral Plans? If history is not to be repeated, these firms and their products should be viewed cautiously, if not sceptically. Due diligence, TCF (Treating Customers Fairly), and Fair Value are key considerations.
✓ a probate plan could represent fair value for customers.
✓ terms and conditions could provide customers with robust and fair protection.
✓ client funds could be properly safeguarded.
✓ all applications undergo a suitability test, a thorough compliance check, and a verification process to confirm customer needs.
✓ the nominated probate firm is allocated and named in the plan certificate at point of sale, and not at time of need.
✓ a plan could be transferred to someone else at no additional cost.
✓ a plan could be cancelled, and a refund obtained, if the estate no longer required probate.
✓ all approved distributors undergo due diligence checks and structured training, with an agreed – and monitored – Code of Practice.
✓ agent arrangement fees are not excessive, exaggerated, or grotesque; and represent a similar fee share to that paid by legal firms for referrals at the time of need.
✓ probate plans could represent a reliable source of future market share, and additional revenue opportunities for law firms, where additional work is required.
If all this is possible prior to statutory regulation, is an overall ban the right course of action? Or could it be, your members must not support any prepaid probate firms who operate outside of these minimum standards.
Prepaid probate plans can form a particularly useful planning tool for certain segments of society, as well as the legal profession. Subject to the right customer terms and conditions, and ethical behaviours, they can enable people to plan for a future event, to obtain peace of mind, to mitigate the stress and burden on family members, to hedge against inflation, and to avoid uncertainty.
Prepaid Probate Plans Ltd have taken core principles of FCA Regulation and the FPA Code and embedded them into our operation from the start – we meet these standards now.
We are happy to contribute to any consultation on the proposal for statutory regulation; and welcome the opportunity to work with the profession, alongside its self-regulatory trade bodies and other organisations, to agree robust pre-regulation threshold conditions, including a Code of Practice, and a compensation fund, under a proposed self-regulated body. This will help ensure a commitment to high standards and Fair Value; and as far as is possible, prevent customer detriment in the pre-regulation period by excluding non-member firms from distributing through your member organisations.
Finally, we would like to openly engage to discuss positive solutions to provide customer protection, and appropriate customer choice, and at the same time, provide the legal profession with an opportunity to secure future market share and an enhanced business valuation.
For our responses to concerns we have seen raised, please see our Q&A information sheet below.
Addressing potential concerns – and how we are different
How are we different?
We have taken into consideration the recent impact of FCA regulation of funeral plans; we have designed our products and processes to satisfy Threshold Conditions and the requirements demanded by potential future regulation of probate plans, including Fair Value Test, and Demands and Needs, which allows us to focus purely on delivering positive outcomes for customers.
How can you be sure that a product will not be mis-sold?
Every customer or agent (of the customer) must complete an online pre-sale suitability application, which records their needs and circumstances. Our systems do not permit an application to proceed if the applicant does not meet the qualifying criteria. Every client then receives a post-sale ‘welcome call’ from a member of our staff, to verify that all demands and needs have been met, they fully understand the probate plan and any limitations, the benefits to them and their family, and are happy to proceed.
How can the customer be sure their money is safe?
When a plan is purchased, funds are paid directly into the Probate Trust where they will remain secure until the day the services are required. Prepaid Probate Plan funds are held securely in the Trust by professional independent trustees, who are required to ensure the adequacy of funds to cover the cost of the probate services when they occur. The trust is independently audited and subject to strict actuarial reporting, to ensure that it remains solid, completely secure, and funded to pay for probate liabilities.
Who are the trustees?
The professional Trustee is Zedra Governance Limited, who are a leading independent professional trustee and governance services provider, and part of ZEDRA, an international provider of Corporate & Global Expansion, Active Wealth, Pensions & Incentives and Fund solutions. ZEDRA have real-time online access to our customer CRM and to our bank accounts; and have been granted powers to select their own choice of Auditor, Actuary, and FCA (Financial Conduct Authority) regulated Fund Manager for the fund. They also have their own in-house board-level Fund Manager to ‘manage the Fund Manager.’
How can you be sure the service can be delivered at the time of need?
We have a specialist panel of regulated probate firms who each undertake rigorous compliance and due diligence checks as part of our onboarding process. At the time of purchase each plan is immediately assigned, under a contract for services, to a named professional and regulated probate firm, and the funds to pay for this service are held by the independent trustees.
What happens if the nominated professional firm ‘at the time of sale’ cannot do the work at the time of need?
In this event we have the power to nominate another firm on our specialist panel.
What happens if you go out of business?
If we were to cease trading the Trust Fund will continue under the management of ZEDRA, the Trustees. The Trust Deed gives the Trustees the power to pay the nominated Probate Firm (as a class of beneficiary), so that the services can be delivered, and paid for, at the time of need. Alternatively,
the Trust Deed gives the Trustees the power to refund the customer if that is the customers preference.
What happens if the client no longer needs the product before the date of death, or at the time of need?
Many people buy products they may never use, such as LPA’s, Family Trusts, and insurance cover. None of these offer customer refunds if they are not used. However, with a Probate Plan, if during their lifetime, the customer decides they no longer require the plan, they can cancel it and get a refund or transfer the plan to someone else. At the time of need, if the nominated Probate Firm assess that probate is not needed, then the plan can be transferred to someone else in the family, or a refund claimed for the estate of the deceased.
Will the plan cover everything, or will there be additional costs?
All our Probate Plans include payment of the Regulated Probate Practitioners’ services, which cover the essential elements of either, applying for and obtaining the Grant of Probate, and/or estate administration up to an estate value of £5million. Our research indicates that our plan specification will cover all the professional fees in 75% to 80% of estates (excluding disbursements). In the remaining 20% to 25% where the estate contains elements not included in the plan specification – which is clear and transparent to the customer – it is only these elements that will be billed to the estate by the Probate Firm if those circumstances still exist at the time of need. They may not.
Are additional costs clear to customers from the outset?
Yes. Our aim is to be 100% honest and transparent in our offering, highlighting not only what is included in our plans, but what is not included. Details of additional costs that may be payable from the estate at time of need can be found on our website, our brochure, our terms and conditions, as well as in a range of supporting collateral for both agents and customers, prior to them purchasing a plan.
Why prepay, and why not leave the family to sort it out at the time of need?
Probate Registry statistics show that nearly half of all probate applications are made by professional firms, clearly demonstrating the demand for professional services at the time of need. Without pre-planning, families are left to find a firm at a particularly vulnerable moment in their lives and often end up facing a blank cheque. There are more than 150,000 solicitors and legal practitioners, operating out of more than 10,000 firms in England and Wales – it isn’t easy choosing the right one, particularly at a difficult time. By pre-planning, the customer is getting peace of mind by fixing the costs now, and the knowledge of pre-selecting a probate expert from our panel.
Aren’t prepaid probate plans going to be the next funeral plan scandal?
The FCA have stated that almost 90% of existing funeral plans are held by FPA firms who they have now approved for regulation. If we are to learn lessons, then this is a critical fact, which should not be ignored. Some funeral plan firms who failed to become regulated by the FCA have now turned to probate plans. This does not mean probate plans are bad. It should mean that, if history is not going to be repeated, then these firms should be viewed very cautiously, whichever marketplace they choose to operate in. Due diligence is key.
Are outrageous commissions going to drive distribution in the market?
No. Not if legal-self-regulatory trade bodies and individual distributors themselves do the right thing and support an acceptable Code of Practice based on FPA and FCA principles. Commission in
isolation is not the main issue. Some distributors were guilty of selling poor value funeral plans to obtain high commissions – they were part of the historical problem; this should not be overlooked. Some professional advisors within the probate sector obtain generous fee-share arrangements at the time of need. Sometimes these arrangements can also be too generous, to the detriment of the customer. The focus must be on Fair Value. Trade bodies ought to require their members to demonstrate Fair Value in all their transactions with their clients. Our policy is to represent a fair fee share similar to the fee paid for referrals made at the time of need.
How are your prepaid probate plans designed and governed?
Our Probate Plans are designed to provide peace of mind by enabling the buyer to organise and prepay for the services of a regulated practitioner. We understand the need to undertake fair value assessments, to ensure prices remain fair to customers. As such, these assessments will be conducted on an annual basis and the Board will consider and approve any fair value exercises undertaken. There will also be a formal annual review process for product and the product governance process, to ensure it is still fit for purpose.
Do you support the argument for statutory regulation of prepaid probate plans?
Yes. Based on some of the products now seen on the market, and some of the published terms and conditions, we do feel that some customers are open to being treated very unfairly. However, trade bodies could deal with this issue now, prior to regulation, by guiding their members towards ethical practices, Fair Value, and proper due diligence.
Do you support the overall ban some trade organisations have imposed on prepaid probate plans?
No. The ban is more likely to restrict the size of the market and make it less interesting (less urgent) to the regulator. It will not help the drive for regulation if there is no market. The ban will only serve to lock out ‘good’ firms as well as bad and restrict consumer choice. We will serve our customers, and society, by treating customers fairly, by offering fair value, and by being clear, honest, and transparent; demonstrating and leading the way in what ‘good’ looks like in a new emerging marketplace… ensuring lessons have been learnt.
This article was submitted to be published by Prepaid Probate Plans Ltd. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.