ASIC urges super trustees to improve target market determinations

The Australian Securities and Investments Commission (ASIC) is calling on superannuation trustees to improve the effectiveness of target market determinations (TMDs) after a sample review of trustee compliance found some poor practices.

The regulator 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.

“The design and distribution obligations were introduced to improve consumer outcomes,” said Danielle Press, commissioner at the ASIC. “As product issuers, it is the fundamental responsibility of trustees to know their product offering and who it is right for.”

Press said trustees should clearly define their target markets and review triggers in the TMDs using objective, specific and measurable parameters.

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“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 [DDOs],” she said.

“Some of the target market determinations that we looked at gave us comfort that they may be part of a well-designed and comprehensive governance programme. However, others by their lack of specificity, raised questions about the underlying arrangements that trustees have in place to ensure their products reach the right consumers.”

DDOs require firms to design financial products to meet the needs of consumers and to distribute their products in a more targeted manner. Trustees are required to produce TMDs for choice superannuation products offered after DDOs commenced on 5 October 2021.

“We expect all trustees to consider these observations when reviewing their target market determinations,” said Press. “Trustees are strongly encouraged to focus on clarity and specificity to ensure these documents are fit-for-purpose.

“Trustees must not adopt a ‘set and forget’ approach to their target market determinations. Failure to review them regularly and take corrective action can result in harm if the product is inconsistent with the objectives, financial situation and needs of consumers in the target market.

“ASIC is now focusing on compliance with the design and distribution obligations, and we will move to enforce the obligations where necessary.”