Death and Taxes: Are These Two Certainties A Good Place To Invest As The Boomer Generation Ages?

• On 3:31 pm EDT, Tuesday September 15, 2009

67 WALL STREET, New York - September 15, 2009 - The Wall Street Transcript has just published its Funeral Services and Tax Preparation Report offering a timely review of the sector to serious investors and industry executives. This 57 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Estate Tax Planning -- Death and Taxes -- Tax Accounting Services -- IRS Audit Targets -- Cremation Market - Funeral Service Providers - Increasing Competition - Imported Chinese Caskets - Traditional Funeral Service - Membership Retention Rate - Funeral Trends - Potential of the Publicly Traded Companies - Public Funerals - Pet Funerals

Companies include: Intuit (INTU); Jackson Hewitt (JTX); H and R Block, Service (HRB); Gilman Ciocia (GTAX); Corporation International (SCI); Carriage Services (CSV); Keystone North America (KNA:TSX); Stewart Enterprises (STEI); Hillenbrand (HI); StoneMor (STON); Matthews International Corp. (MATW); Aurora Casket Company.

In the following brief excerpt from just one of the 10 interviews in the 57 page report, an industry expert discusses the outlook for the sector and for investors.

Robert M. "Bob" Fells, Esq. has served as General Counsel of the International Cemetery, Cremation and Funeral Association since 1983 and worked on behalf of the cemetery and funeral services industry since 1975. In 2000, he was appointed as the association's External COO. In addition to these duties, Mr. Fells serves as President and General Counsel of the ICCFA Service Bureau, Inc., a for-profit subsidiary of the association that administers the Credit Exchange Plan. Mr. Fells serves as Executive Director of the recently formed ICCFA Educational Foundation, a tax-exempt charitable organization. He is a graduate of Iona College and holds a Juris Doctor degree from George Mason University School of Law. He is a licensed attorney in Virginia and the U.S. Supreme Court Bar.

TWST: How has the recession affected death care businesses?

Mr. Fells: I know again the mainstream media seems to feel that everybody is holding back on their funeral arrangements or trying to sell unwanted cemetery property for the money. We're not really seeing that on a large scale. We know from past recessions like in the early 1980s that pre-arrangement will suffer because people are a little afraid of losing their job. That always changes as consumer confidence returns. People who are paying for a funeral or burial that's needed now, to some extent, maybe don't purchase as expensive a casket as they would. Many times, at-need funerals are paid for either out of savings or out of life insurance policies, so the funding resource is different. The current economic climate will not necessarily impact people's ability to pay for a funeral, particularly if it's paying for things that have value to them.

TWST: Have there been a number of funeral homes closing in the past year because of economic problems, or is that not really an issue?

Mr. Fells: We know that there has been a decline of traditional funerals and there has been a rise in non-traditional funerals. It's a good news/bad news thing. We know that there are funeral homes that have closed down or have merged. There are many small funeral homes that are operated as part-time businesses. There are funeral homes that only do maybe one call a week or three or four a month as opposed to some that do hundreds per month. So there are still many very active operations, but as society gets away from the idea that every death has got to have a traditional funeral, it will change the nature of the business.I don't know of any resource that has tried to track either funeral home openings or funeral home closings. I know that a few years ago, Service Corporation International divested themselves of something like 200 funeral home properties, but they sold them for the underlying value of the real estate, they did not sell them for the business itself. That might give you an indication of perhaps some markets being oversaturated with funeral homes and with decline of traditional funerals in some areas, you don't need them all. Funeral directors are becoming more like event planners, so it's not that people don't want funeral services, but instead of having the services in a funeral home, they want to have the funeral at their home or in their backyard. The funeral homes that say, "Yes, we can do that" are the ones that are going to prosper. They are finding that food service and catering are becoming a popular part of funeral planning. The ones that say, "We've never done that before, and we won't start now" are the ones that may be closing their doors. Part of the resistance to change is that the small businesses are often family operations. Many times, a funeral director who is 50 years old today learned everything about his business from his parents, and what they knew was learned from the grandparents. Some funeral homes in 2009 operate on a 1959 business paradigm. Today it's obsolete. Funerals aren't going to go out of style any time soon. There is a joke that the mortality rate is always 100%, ultimately. What we are finding is that people have learned they can have funeral services without a funeral home, and they can dispose of human remains, particularly if they're cremated, without a cemetery. The challenge is how we are going to make ourselves useful to people. Fortunately, there are many ways to do that. If you want to hold a service in your backyard, you need somebody who's really an event planner for a funeral. However, if someone says, "We don't do that," the consumer is going to go elsewhere, and they're going to find other funeral homes that are willing to do that. We made that mistake with cremation many years ago, and to some extent the industry is still paying for that. But a lot of people wised up and realize that when people come in and say they want a cremation, that's an opportunity. The old reaction used to be, "Can I talk you out of this?"

TWST: Are there any other up-and-coming trends that you think will affect funeral homes and cemeteries financially?

Mr. Fells: Another opportunity involves the baby-boomer consumers. I'm 58, turning 59 years old, and part of the famous "me" generation. The oldest of Baby Boomers is now just 63 years old, but they are getting into the time of life where they're starting end-of-life planning, as they call it. That includes having a will, a durable power of attorney and a lot of other key documents. That also includes funeral or burial arrangements. I have a hunch that my generation is not going to favor direct disposition; they won't be crazy about the idea of "Just cremate me and scatter me to the four winds," because they're going to say that looks like they've been wiped off the face of the earth. I think a lot of boomers will reason, "I did a few things I'm kind of proud of, and I wouldn't mind if future generations are reminded of those things." As Baby Boomers start planning for end of life, I believe they will want things that are going to stand the test of time and preserve their legacies, so that people who aren't even born today are going to look at future burial sites and memorials and will say, "I didn't know he did that, he must have been an important guy." For example, one of our member cemeteries in Florida built six family mausoleums on spec, and they were snapped up almost immediately. Again, we are seeing that if something has personal meaning, people will figure out how to afford it. I was talking to a well-known funeral director recently, and he said, "Bob, do you know statistically how many times people ever come back to visit the grave site after the burial? On the average, it's once." I said that that's not the point for the boomers. People are going to want to build special memorials or monuments or even family mausoleums, and they're not going to be concerned if their family ever comes back. They know that total strangers will go by, and they will see it and say that person must have been important. I may be mistaken, but I think that will appeal to the Baby Boomers. I think when they make their funeral plans, we could begin a whole new age in funerals and memorialization. I think there is something in our DNA that nobody wants to be forgotten. That's what a funeral and a memorialization has always been about, about remembering and being remembered. We are in a new age, there is no question. Many societal norms have changed, and we're not quite sure where they are all going, but I think the fact that nobody wants to be forgotten is a stepping stone for a lot of future planning.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 57 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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