When news of the Wisconsin receivership was made public, I anticipated some signs of support from other state associations. The strength of a professional relationship can be measured by the support given subsequent to a public indictment. But, when that support comes in the form of hackneyed advice, the accused is left to wonder about the relationship. It should not come as a surprise if the Wisconsin Funeral Directors Association leadership was frustrated or angered with the National Funeral Directors Association or the New York Funeral Directors Association over the ‘advice’ given through trade journals.

When asked by the Funeral Service Insider for a response to the Wisconsin ‘scandal’, the NFDA recommended its model preneed law and referred members to its “Guidelines for Evaluating Preneed Trusts”. How would the model laws have avoided the Wisconsin scandal? Does the NFDA advocate investment standards that would permit diversification and the prudent investor rule? Would those model laws make the Wisconsin program more competitive with insurance companies?

If one were to review the NFDA’s Guidelines for Evaluating Preneed Trusts, you would find a section titled Rate of Return. That section includes questions about whether the preneed program provides guarantees about the rate of return on investments. It would be reasonable for the WFDA leadership to infer from the Guidelines that fixed or guaranteed rates of return are an acceptable method of master trust administration. So, that leadership has to be asking itself why they are facing a securities investigation by including that same guaranteed rate of return in preneed contract forms and consumer marketing materials. The WFDA leadership could have corrected its program and avoided the securities issues if those Guidelines had been revised years ago to recommend market value administration and the limitation, and disclosure, of the association fees charged to the trust.

The NYFDA association advises the funeral industry that state associations are uniquely well-positioned to deliver on preneed safety and security, and argues that competent executive directors and educated volunteer leaders can deliver what no other entity can. The NYFDA goes on to assert that return of principal is more important than return on principal, and that trust programs start to go off the rails when too much authority and oversight is handed over to third parties (that want to make money on the backs of funeral firms and consumers). What is the WFDA preneed committee (or other associations) to make of that advice? Are they to direct the trustee in making investments? Are they to ignore the demands of trust participants for higher returns? Are they to ignore the fact that New York is the only state to have laws that require 100% trusting and that bans insurance funded preneed? The reality is that state association preneed programs are under increasing pressure to improve investment returns. Unfortunately, associations are contributing to that pressure with the fees they are charging the trust.

During the past six years, four state sponsored programs have “crashed” due to fiscal problems and noncompliance. Minnesota, Illinois, California and Wisconsin all seemed to have respected executive directors and educated volunteer leaders. What roles did internal fees and outdated laws play in each situation? Would these associations have lost program participants (and the accompanying sponsorship fees) if they had provided more transparency regarding investments and internal fees?

I agree with Ms. McCullough that association sponsored master trusts are uniquely well-positioned to deliver on preneed safety and security. The problem is that too many have not delivered either safety or security. How many of these programs adhere too closely to Ms. McCullough’s advice? The affidavit that served as the tipping point for the appointment of the Wisconsin receiver paints a picture of a dominant association executive and an active and engaged volunteer board. Where were the compliance attorneys and the corporate fiduciary during the preneed committee meetings? Were they even invited? While there will be more pieces to the Wisconsin puzzle, what is available today suggests that the WFDA should have sought the input of “experts” instead of excluding them.