When the MFDEA Preneed Portability video disclosed that expense distributions were being paid from the Missouri Funeral Trust to the association, we thought it was appropriate to revisit prior blog posts about the failures of association master trusts in Illinois, Wisconsin, Minnesota and California. Those state association master trusts were forced to close, to restructure or into receivership when mismanaged by association executives. The MFDEA video suggests to us that MFT funeral providers are raising questions about the costs of the program and whether they can transfer to other preneed programs. Knowing the history of the MFT response to inquiries, we doubt that funeral homes are being provided any useful information.
As we originally discussed in the post “Preneed Trust Shortages: investment management fees”, a state association master trust can provide the ‘critical mass’ required for economies of scale to diversify investments and reduce trust management costs. In theory, as the state master trust grows in size, the association could better negotiate investment and administrative arrangements. However, the reality was very different for those four state master trusts set out above. Association executives turned a blind eye to trust expenses.
Master trust programs should provide to their funeral home providers the following information:
- The name and address of the trustee.
- The master trust’s written investment policy.
- The fees paid to the trustee, fund managers, account administrators and tax preparers.
- The taxes paid by the trust.
- A summary report of the trust’s investment performance and asset description.
- A disclosure of related party transactions (loans, discounts, service agreements, etc.)
- Any sponsorship fee paid the association.
With regard to the Missouri Funeral Trust, the last item is a trick question. For contracts sold after August 28, 2009, Missouri preneed laws restrict what may be distributed from a preneed trust. This is especially true for preneed sellers. If MFT is receiving income distributions from its preneed trust, other Missouri preneed sellers can cry foul. That is why the industry is so interested in what the new State Board does with the pending MFT financial exam.