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3 Drivers of Preneed Performance

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Date Published

July 22, 2020


Illinois Funeral Directors Association


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Funeral operators searching for ways to increase revenue and cash flow should start with maximizing the potential of their preneed trust business.

The funeral service profession is well-positioned to capitalize on this line of business for two reasons: an aging Baby Boomer generation and the appeal of preneed services to parents who want to take the financial burden off their children. But with increased threats from new and existing competitors and consumers looking at alternatives to traditional funerals, focusing on preneed trust business could be just the tonic to boost top-line growth and profit margins.

While operators understand how preneed trusts work, many are unaware of how a few key factors determine if future services are delivered at a profit or loss. While some factors are out of your control (stock and bond market performance), others are not (investment fees). Here are three key considerations to help you monitor your preneed trust program and improve the financial performance of your business:

1. Have a plan

Managing a trust without a plan is planning to fail. This failure to plan can be less obvious in periods of strong market performance but will be obvious in difficult markets. It all starts with an Investment Policy Statement (IPS). Your IPS should start with the limitations imposed by the state and take your appetite for market risk into account. It will define the levels of exposure in stocks, bonds, and cash that are acceptable. It should then go into more detail about the types of stocks (large, medium, small, or international companies). Similarly, the allocation to bonds should detail the credit quality limits or duration limits that should be in the portfolio. An IPS should be flexible enough to allow your investment manager to make decisions but specific enough that they will not exceed your tolerance of market or credit risk. Keep in mind our tolerance for risk changes over time so your IPS should be reviewed at least annually.

2. Use the data you have

All trusts are unique, given that the age and state of health vary widely among contract holders. The age of contract holders gives you insight into when they may be expected to go at-need and the current value gives you the ability to compare it to the current pricing. Comparing those two together will help you develop the Invest Policy Statement. Longer contract lengths increase the likelihood that the value of the trust will equal or exceed the current price of services. Operators should review contract value and length to maximize pricing and profits. This exercise is also extremely helpful in forecasting your revenue per call.

3. Review Trust Portfolio Performance

The investment performance and fee structure of your trust portfolio are key drivers in the profitability of your preneed program. Operators should only work with respected, top-performing money managers who offer competitive fee structures, which will maximize investment returns and minimize administrative costs.

Your portfolio should be benchmarked to the appropriate index – for example, the S&P 500 for equities or the Bloomberg Barclays U.S. Aggregate Bond Index for fixed income securities – for comparative purposes so you can evaluate investment performance and quantify the value your manager brings to the trust. If investments decline or do not keep pace with funeral service operating costs, the value of the trust may not cover the expense of delivering services and merchandise in the future. This will result in an unintended discount to your current pricing model.

Positioning for the Future

Preneed contracts represent between 30 and 50 percent of a funeral operator’s revenue and should be a key profit center for your business. Understanding the important drivers of financial performance for your trust operations will help you mitigate unnecessary risk, improve profits, and position your company for future growth.

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Jim Breaux

Jim Breaux joined Argent Trust in 2018 and serves as a Senior Vice President and National Sales Director.Prior to joining... Read More

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Program Titles and Supporting Materials

This program contains the following components:

Video Presentation
Slide Deck Copy
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