Friday, March 20, 2009

Why is a General Price List (GPL) So Confusing?

The GPL is the keystone of the FTC's "Funeral Rule" ("the rule"). A funeral home must provide a written GPL, for the individual to keep, to anyone who asks, in person, about funeral goods, services or the prices of such goods or services. This includes consumers, journalists, competitors, religious societies, government agencies and consumer groups, among others. If not requested, it must be offered when discussions begin about the type of funeral or disposition that the funeral home arranges, specific goods or services offered and/or the prices of such. The rule provides guidelines and, at times, specific language, on a number of things, such as compliance, types of information required on the GPL, alternative price lists, casket and outer burial container price lists, cost information and disclosures, telephone disclosures, specific prohibited misrepresentations, embalming, record keeping, consumer protections and state exemptions.

The fact that this rule exists at all, with an entire section dedicated to specifying prohibited misrepresentations and providing the actual language that needs to be used, the placement of the text and the type set may lead a reasonable person to assume that without those specific prohibitions, misrepresentation by funeral homes would be rampant. Let's talk about that further...

The rule does not dictate the GPL's format or placement in the pile of papers one is given when arranging an at-need funeral. So, here's a scenario...

A mother of three school-aged children learns that her beloved husband has died suddenly and unexpectedly, with no life insurance. The hospital needs to know which funeral home to send the body to. Without having ever considered that question, she of course names a local funeral home, which she may or may not have prior experience with. She contacts the funeral home and set a meeting to discuss the arrangements. In a complete emotional hurricane, she is provided a GPL, and walked through the myriad of questions, arrangements and decisions that must be made immediately. In a normal state of mind, she would thoroughly read through any contract to understand exactly what she is buying. But, her life has turned upside down and she is looking for a trusted expert to guide her through this devastating time. The funeral director provides her with a written GPL, which is 40 pages in length and includes tables, graphs, poems, pictures, optional and nondeclinable goods and services listed together and line item prices for everything, including "helpful" sections with prices for a couple of different things grouped and various "package" deals. She is clearly emotionally overwhelmed, so the trusted funeral director tells her she has that for reference, but that he can just guide her through what decisions need to be made. Burial or cremation? Burial.

Casket time. Statistics show that consumers generally purchase 1 of the first 3 caskets they view, and select the mid-priced range. Funeral directors know this, so they target the higher mid-priced range of caskets they offer, regardless of whether this is within her budget or not. She first views a $3,000 casket (wholesale $750), then a low-end casket for $2,000 (wholesale $500), and last a "mid-range" for $2,300 ($600 wholesale). She selects the "mid-range".

Interim tally sheet: By walking in the door without a pre-need funeral plan and making emotionally driven decisions without understanding that the funeral director likely has numerous lower cost casket options that he consciously chose NOT to offer, her bill looks like this:
Basic Service Fee (nondeclinable): $1,480
Casket: $2,400
Embalming: $850
Transfer Vehicle to Funeral Home: $275 (from hospital to funeral home)

So, from the get go her bill is already $5,005, without a cemetery plot, outer burial container, visitation (not included in basic service fee), limousine for family, hearse (not included in basic service fee), utility or flower vehicle and other expenses.

No need to belabor this story any longer, I think the point is clear. The Funeral Rule is absolutely designed to identify and enforce consumer protections, but as we all know, there are always methods of "technically" complying outside of the intentions of the law. Many times funeral homes make GPL's intentionally confusing and complex, long and arduous to read and understand, and misleading with "package" deals and other optional items because the opportunity to up-sell or emotionally manipulate is by definition their profit margin. If you take the emotional element of funerals out of the equation, funeral homes are for profit sellers of funeral goods and services who profit when people die. And, there is nothing wrong with that. That is capitalism and this is America...a free market.

My issue is when one party, the funeral home, is in a distinct and meaningful advantage over the consumer who seeks their services. The consumer is an emotional wreck, decisions and arrangements must be made quickly, and comparison shopping is the last thing they have the emotional energy or time to do. The consumer many times become the victim.

That is exactly why Funeral Planners Inc. and the services we provide are absolutely essential. Everybody dies...that is a fact. Now, once again, take the emotion out of it and think with a clear, thoughtful and financially responsible mind about the decisions and arrangements, well over 100, that you can and should make in advance, with the important benefit of time and resources for comparing costs of goods and services. Or, you could choose to not think about it and leave that emotional burden to be carried out by your family and loved ones, with your final gesture of love being the $7,000 funeral bill!

Pre-planning is smart and necessary. Get informed so that you can be prepared.

"Trust" Is A Funny Word With Pre-Paid Funerals

As if further evidence of the manipulation and misrepresentations, coupled with a relaxed or unenforced regulatory environment, associated with pre-need funeral contracts was necessary, the Illinois Funeral Directors Association is now embroiled in two lawsuits alleging the group mismanaged a trust under their oversight.

In fact, calling this vehicle a "trust" is an oxymoron in itself. Under their supervision, the investment trust, which was set up about 30 years ago to invest funds collected by IFDA members who sold pre-paid funeral contracts to consumers, resulted in a $60M deficit last year. At year-end 2007, the ending balance of the trust was more than $300M, representing 49,000 Illinois consumers who "trusted" the funeral directors who sold them. The IFDA contends that they have routinely paid out more for funerals than the value of the contract and their investment strategy of purchasing life insurance policies that invested heavily in corporate bonds was hit hard when corporate bonds went the way of the rest of the economy, doubling the deficit.

Now I do not proclaim to be an economics genius, but I do have some experience with money management, running a business and oversight responsibilities. Their entire premise is flawed from the get go. First, the cost of a funeral is driven by the funeral directors. Using emotional and pressure selling techniques to up-sell consumers and wholesale markups of up to 700% naturally result in higher cost funerals. So, if the contracts they sold were inadequate to cover the inflated funerals they cause, it seems reasonable that they could control and eliminate that shortfall. For instance, rather than selling a casket for 700% over wholesale, sell it for only 300%, or instead of charging $50 for a military bugler, who by the way volunteers his time, charge what is fair which would be nothing, whereby the contract coverage may be adequate. When funeral directors arbitrarily set the final price of a funeral, it is all negotiable. But, like all things, there's a can't have it both ways. You can't sell a pre-paid contract for "x", deplete it immediately by taking administrative or other fees, then employ markups and other practices that drive the final cost of a funeral to exceed the value of the contract you sold to cover it. That's not economics...that's common sense.

Second, what kind of investment strategy takes the entire fund and invests in one single strategy that is market sensitive and not guaranteed? The answer is an investment strategy that is doomed to fail. Since this capital was the fiduciary responsibility of the IFDA, it's logical to think that at least some, albeit most, of the investments would be in steady but unexciting vehicles like U.S. Treasuries or indexed. I believe there is a name for betting the house on one idea...gambling. The IFDA gambled with the "trust" and investments of 49,000 Illinois consumers.

And the cherry on top of this distasteful delight is that state regulators, who clearly failed to "regulate", renamed Merrill Lynch Trust Co. as the new trustee last November. Now, we all have been witness to how trustworthy Merrill Lynch is. Does the madness ever end!

Pre-payed funeral contracts are ripe for exploitation and fraud by design. There is no federal oversight, it lies with the state in which the funeral home does business. State by state, these contracts lack uniformity of language, content or format outside of general contract guidelines, with some (few) states providing explicit parameters and others providing little to absolutely none. There are no standard or best practice codes regarding the consumers ability to modify, cancel or transfer the contract or the method of reimbursement should the funeral home be unable to fulfill the obligations or declare bankruptcy. The method of investment by the funeral home is not standard, with some commingling funds and others holding individual accounts for each payee, and no guidelines on interest income or ongoing administrative or other fees, among others. The licensing grid is confusing and inconsistent, with some states requiring no license whatsoever to sell a pre-payed contract as a representative of a funeral home. And, here's the kicker, some states allow for the funeral home to retain whatever funds are left over rather than returning the funds to the family or estate. It's almost like a custom designed framework to fail.

Stories like the IFDA and so many others will continue until pre-payed funeral contracts fall under the jurisdiction of the FTC, with explicit rules and guidelines similar to "The Funeral Rule", as opposed to putting the fox (funeral directors) in control of the hen house (consumer pre-paid contracts). Until then, consumers will continue to "trust" the funeral director of their choice to do the right thing. A sad state indeed.

Wednesday, March 18, 2009

About This Blog...

Funeral Planners Inc is a consumer advocacy service.

The purpose of this blog is to inform people of their rights and to save people money related to the purchase of funeral goods and services.

We are dedicated to operating with the highest degree of integrity while advocating for our clients.

Our sole focus is helping our clients become informed consumers while planning for a funeral, memorial service, or related events, including the associated expenses.

We do not offer funeral, burial, cremation, or memorial goods or services ourselves, and we are not affiliated with any funeral industry service providers. Furthermore, we do not accept commissions of any kind, or otherwise profit in any way, from funeral or insurance industry service providers.

Our philosophy centers on one core principle... An informed consumer is a prepared consumer.

We advocate pre-planning, not pre-paying. Pre-planning allows our clients to make their wishes known, and feel confident knowing that they have taken the necessary steps to lessen the burden felt by their families and loved ones during that time of overwhelming grief and disarray.

The cost of a funeral may be one of the largest expenditures a family will ever make. The plan that we will create together will empower our clients to make informed and educated decisions, while of sound mind, in a cost controlled environment.