Funeral bonds are carved out of the FOFA regime because they are listed in section 765A of the Corporations Act under ‘Specific things that are not financial products’.
They cannot be redeemed unless they are used to pay for the owner’s funeral and can only be issued by so-called ‘friendly societies’.
Speaking to InvestorDaily, Lifeplan chief executive Matt Walsh – who also doubles as the president of industry association the Friendly Society of Australia – said funeral bonds do not fall under the Product Disclosure Statement regime.
“There’s a view that you could have commissions remaining in funeral bonds because of where they fit into the regulations,” he said.
But Lifeplan has created a detailed disclosure document for the FuneralPlan Bond that Mr Walsh says is “FOFA-compliant”.
“We as a provider have elected to take the high [road] and treat [funeral bonds] as a regulated product to the greatest extent practical,” said Mr Walsh.
Indeed, the Lifeplan disclosure document contains information about an ‘adviser service fee’ and adds that there “is no fee or commission payable to Lifeplan”.
But while Lifeplan has voluntarily removed commissions from its product, Mr Walsh said he could not speak for all of the different funeral bond providers.
“It’s up to a purchaser of a funeral bond to read the fine print in the disclosure document to see if commissions are still paid,” he said.
The Bendigo Funeral Bond, which is issued by the Sandhurst Trustees-administered Australia Friendly Society, acknowledges in its disclosure statement that it may pay commissions to financial advisers.
“The Society may pay to its distributors or to licensed/authorised financial advisers (which may include financial advisers within the Bendigo and Adelaide Bank Group) an upfront or ongoing commission,” says the document.
The commission payment, which is technically made by the Australia Friendly Society rather than members, is typically 2 per cent plus GST in upfront commission on initial and additional contributions and 0.25 per cent plus GST ongoing commission on all funds under management, said the document.
Australia Friendly Society chief executive and Bendigo and Adelaide employee Mandy Cooper told InvestorDaily her organisation has attempted to be “flexible to the needs of a variety of IFAs”.
“For those who still wish to receive commissions, that structure is there, and does remain at this point in time,” said Ms Cooper.
Asked whether the Australia Friendly Society planned to remove commissions from the product, Ms Cooper said: “It’s something that is still on our agenda to consider but we haven’t made a definitive decision.”
Another major player in this area, Foresters Friendly Society, also pays commissions to advisers who place clients in the Foresters Funeral Bond.
“Foresters may pay a commission to licensed financial advisers and accredited agents. Foresters may pay up to 2 per cent up-front commission on initial and additional contributions,” the disclosure document says.
