It will also look at how prices have risen over time – including fees for cremations, which now account for 75 per cent of all funerals.
The probe will also examine reports of elderly people being “pressured, harassed and misled” by some firms.
And demand for pre-paid funeral plans has grown rapidly, with annual sales rising 245 per cent between 2006 and 2017.
However, regulations have remained the same since 2001.
The average price of a funeral hit nearly £3,800 last year before “extras”, which the CMA said could add another £2,000 to final bills.
People on low incomes can end up spending up to one third of their annual income on funerals, it found.
The Government has signalled it will hold a separate crackdown on “rip-off” prepaid funeral plan providers who prey on vulnerable people who worry about relatives finding cash for their funerals when the time comes.
Ministers want to bring the sector under the regulation of the Financial Conduct Authority (FCA).
The Treasury is launching a consultation process that aims to prevent people being exploited when they are at their most vulnerable.
Economic Secretary to the Treasury John Glen said: “I’m appalled by the lengths that some dishonest salesmen have gone to in order to sell a funeral plan.
People on low incomes can end up spending up to one third of their annual income on funerals
“It breaks my heart to think that our oldest and most vulnerable are being pressured into funeral plans that leave their grieving families out of pocket.
“There are thousands of pre-paid funeral plans bought each year and most providers are managing director at consumer group Fairer Finance, said: “We hope regulation of this sector will give responsible companies the chance to thrive and give consumers the necessary reassurances they need to buy in confidence.
“People who buy funeral plans are not around to measure delivery against their expectations, which is why it’s so important there are clear rules around how companies must behave.”
Daniel Gordon, a senior director of markets at the CMA, said: “People can understandably be very emotionally vulnerable when planning a funeral.
“We therefore think it is important that the process is made as easy as possible.”
Commenting on the Treasury proposals, Simon Cox, of funeral firm Dignity, said: “It is excellent news the Government has decided to do something about mis-selling in the funeral plan sector.
“Our research has shown bad practices like persistent and pushy cold-calling are rife among firms that have no oversight from a regulator.”
He said most providers are registered with the industry’s voluntary watchdog, but a growing number of new firms were taking advantage of a gap in regulation.
The Treasury consultation closes on August 1 while the CMA will collect submissions until June 28, before publishing a report in a year’s time.
Despite several inquiries into the funeral industry, government regulators in Australia have failed to tackle ongoing community concerns about rising costs, misleading practices and a growing concentration of market share by two public listed companies – InvoCare and Propel Funeral Partners.
Only time will tell if Australia’s watchdog will have the courage to follow the UK. Most funeral homes in the industry do the right thing, but government regulators in Australia need to act in the interests of consumers, even when there are marketplace reasons not to do so.
eziFunerals is a free consumer advocacy and funeral planning platform that supports individuals and families cope with end of life decisions, death and funerals. We are an independent, Australian-owned and operated company, and are not a subsidiary of any other corporation. We are not part of any other funeral company. Founded by consumers frustrated by how difficult it was to get independent information, eziFunerals supports consumers plan a funeral, compare prices and select the right funeral director anywhere, anytime.