ASIC calls on super funds to improve their TMDs
Superannuation trustees have been told to review their target market determinations with a recent review identifying poor practices.
In a recent update, ASIC has called on superannuation trustees to review and, if necessary, improve the effectiveness of target market determinations (TMD) for their products, after a sample review of trustee compliance found some poor practices.
Target market determinations are part of the design and distribution obligations that came in on 5 October last year. A TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (the target market) and settings relevant to the product’s distribution, monitoring and review.
ASIC recently reviewed a sample of 55 TMDs prepared by 27 superannuation trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products.
One of the observations ASIC made was that while all the TMDs reviewed described target markets, some trustees demonstrated better insight into their products by defining their intended market using specific parameters such as age, occupation or industry, minimum investment balance for retirement products and insurance needs.
“This approach would make it easier for distributors to confidently determine who the product is appropriate for,” it stated.
Others used descriptions of consumer classes that were too broad to be meaningful such as “those wishing to save for retirement”, ASIC noted.
ASIC also found that many of the submarkets described for investment options in TMDs had objectives that were too broad and with non-numerical time frames such as “high growth” or “long term”.
“To be effective, investment sub-markets should be specific and comparable, using quantifiable investment objectives or identifiable benchmarks and commonly adopted measures (e.g. the Standard Risk Measure), with the minimum timeframe for each investment option expressed in years,” it stated.
ASIC commissioner Danielle Press said that as product issuers, it’s the fundamental responsibility of superannuation trustees to know their product offering and who it is right for.
“Trustees should clearly define their target markets and review triggers in target market determinations using objective, specific and measurable parameters,” stated Ms Press.
“Clear target market determinations with appropriate underlying review triggers and controls, point to a trustee’s sound understanding of their product and the design and distribution obligations.”