The long-awaited economic rebound from the coronavirus pandemic is getting closer to reality, so no time is better than the present for funeral directors and cemeterians to focus on improvements to an area of their business that has the potential to generate significant profits in the future: preneed trusts.
For funeral business owners, preneed contracts represent between 20% and 40% of revenue and, if managed efficiently, are a key profit center. Understanding the primary contributors to preneed financial performance will help you mitigate unnecessary risk and improve profits.
During the next several months, the nation’s COVID-19 vaccination program will accelerate across the country. As the number of cases drop, lawmakers will remove social distancing restrictions, which will allow funeral homes to hold memorial services and viewings.
This window of opportunity — from vaccine distribution to loosened social distancing requirements — will give you enough time to conduct a deep dive into your preneed trust program and implement the right strategies and tactics to position your business for future growth. Here’s how you do it:
1| Focus on longer preneed trust contract length
When marketing preneed services to families in your community (and eventually signing up new clients), concentrate on targeting:
• Families who value your services and are willing to pay for them
• Age groups whose funds are most likely to be in your trust the longest
Pay close attention to contract length, which is one of the most important factors in the profitability of a preneed trust. Because each individual is different, each contract will be different. What is the average length of time a contract is in your trust?
The longer the contract, the higher the probability that the value of trust assets will be worth more than the future price of your services. A longer average contract allows for trust assets to benefit from compounded interest on investment earnings. It also allows (depending on your state laws) for the trust to be more invested in equities, which historically have higher returns than shorter-term fixed income securities.
2| Work with proven investment managers
Two additional contributors to preneed profitability are the investment performance and fee structure of a trust’s portfolio. Each contract has a finite life, so it is vital that asset growth and income are maximized and investment management fees are minimized.
Funeral and cemetery business owners should work with wealth management professionals who have a proven track record of growing trust assets and whose fees are competitive. In our experience, the average preneed trust contact lasts about 11 years before funds must be withdrawn to pay for services. Owners should work with professionals who can build portfolios that have the appropriate risk profile and asset allocation mix to generate investment returns that exceed the future retail price of delivering services and merchandise.
3| Team with partners that provide a turnkey preneed trust solution
Providing exceptional service to families during their time of need is job No. 1 for funeral directors and cemeterians. It is often a deciding factor when families choose one provider over another.
Funeral operators should team with experts who can provide a turnkey solution to manage their preneed trust programs. Look for partners with a technology platform that can:
• Provide streamlined regulatory reporting
• Develop and implement investment policy statements tailored for each trust
• Provide continual analysis of the preneed program’s financial performance
Managing the regulatory requirements to be compliant with state and federal laws is an important responsibility that cannot be taken lightly. Outsourcing those tasks to a third party will free you to spend more time with families and your business.
While the current economic climate is challenging, the funeral services profession is well positioned for the future as more baby boomers turn to preneed services. By following these three tips, funeral business owners can fine-tune their preneed trust programs and increase the profits and the value of their business.
If you could benefit from our proven solutions to improve preneed trust programs, please contact me or any one of our professionals at (504) 291-8840. Our veteran team of deathcare industry experts is ready to help.