Last week’s exchange between the State Journal-Register and the Illinois Comptroller’s office underscores just how poorly some regulators (and funeral directors) understand the preneed transaction.
The newspaper’s June 24th editorial included the following statement:
The directors allege they didn’t find out about the audit until fall 2007 when the comptroller revoked the IFDA’s license to be the fund’s trustee.
The Comptroller’s office responded two days later with a letter stating they are only responsible for auditing funeral homes and cemeteries that are preneed sellers, and that the IFDA was not a seller. While this position is consistent with that taken by the Comptroller in its September 17, 2007 letter of revocation, it is wrong nonetheless.
State associations serve as a jack-of-all-trades with regard to their master trusts, including administrative agents. But for smaller operators, the association (or its affiliate) typically serves as the preneed seller, discharging compliance and licensing obligations that are too burdensome for the ‘little guy’. With regard to larger members that have a seller’s license, contracts between the association and the member determine who is the seller.
One problem with the IFDA situation was that the preneed contracts were so poorly written it may be impossible to tell who the seller is. But, it was the Comptroller that licensed the IFDA as a preneed seller, and it was incumbent upon the Comptroller to have addressed the contract and fiduciary problems before the license was issued. It is wrong for the Comptroller to now attempt to duck those responsibilities, or to cram a settlement down the throats of funeral directors on any argument that they were the sellers of the IFDA preneed contracts.