Written by Patrick Ingram, Retirement Specialist 16th August 2019

It’s a year and a half since the PROD rules came into force – so why are they suddenly a hot topic with advisers?

One answer might be DB pension schemes. The FCA’s concerns about improper advice on transfers have highlighted the need for evidence of robust strategy and governance. The PROD regulation helps to ensure that advice is compatible with client needs in a market reported to be worth £2.5bn a year, ongoing, to adviser revenue. [Source: S Birch, Hymans Robertson]

What exactly does PROD say?

The PROD (Product Intervention and Product Governance Sourcebook) rules say that all firms should ensure that they offer ‘good product governance.’

While everything you do is guided by research into and understanding of your individual client’s needs, it’s more important than ever to be able to show that process.

Having clear standards and ways of working can help build your firm’s credentials and make you a credible option for trustees, actuaries and employers looking to do what’s best for their pension scheme members.

Establish a clear PROD strategy

When you are creating your PROD strategy document, start with a clear statement of what you set out to achieve for your clients. For example, you might want to declare a desired outcome of:

“Confidence that the household achieves the right balance between certainty of income and flexibility of access to capital over the entire cycle of career and retirement.”

Then, you need to demonstrate that you can provide advice of the highest professional standard. And that’s where Parmenion’s Income Manager Tool (IMT) can really help you.

Pension scheme trustees, actuarial advisers or sponsoring employer’s Finance Directors will be looking for a good picture of what sort of returns they can expect in different scenarios.

IMT gives you access to the stochastic engine used by actuarial consultants Hymans Robertson to advise on over £500bn of pension assets for employers such as Marks & Spencer.

Of course, that doesn’t make it infallible, but it does mean that the outputs can be accurately described as being of an institutional, professional standard. Using them, with or without an overlay of adviser judgement, roots financial planning in independent assumptions that are difficult to disparage.

Anyone will figure out that if a plan’s assumptions are super optimistic you will see a rosy picture. Some thoughtful people will understand that a rosy outcome might come to pass. But the strength of the modelling underpinning IMT is that it offers an independent actuary’s calculation - one that is continually under review as many billions of pounds and thousands of retirements depend on it. That’s something every client can understand.

If you’d like to know more about IMT and how it can help build your professional credentials, please get in touch.

“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”

Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.