What is a target market determination and why should you care?

It’s not the most user-friendly name, but target market determinations (TMDs) are about something you probably care about deeply – you. In short, TMDs tell you if a financial product such as a super fund is designed with you in mind.

Target market determinations were introduced as part of design and distribution obligations for the issuers of financial products from 5 October 2021. If you haven’t come across one before, it’s worth understanding their purpose and why they matter.

What is included in a TMD?

A target market determination is a document that must be prepared by the product issuer for all financial products that are captured in the design and distribution regime, from bank accounts to super funds, managed investments and insurance. It describes the type of customer a product is likely to be suitable for.

The TMD should describe suitable customers and their likely objectives, financial situation and needs. It should also describe the product and its key attributes and explain why the product is likely to be consistent with the objectives, financial situation and needs of consumers in the target market.

The document also needs to state how the product will be distributed (sold) so that it reaches people in the target market, how often the TMD will be routinely reviewed and what will trigger a review of the TMD outside the routine.

In the case of super products offered publicly, the target market can be quite broad. Many super funds are suitable for almost anyone who wants to save for their retirement. The target market for other types of financial products is often narrower.

Why are they important?

The obligation to prepare and monitor a target market determination requires product issuers to consider and plan how their product will be sold and marketed so that it reaches the consumers it is targeting and is unlikely to be acquired by consumers it’s not targeting.

The regime is intended to protect consumers by preventing the mis-selling of financial products, a feature of past scandals that helped spur the reform.

One of these scandals involved bank representatives selling insurance designed to cover credit card repayments, if the customer lost their job to unemployed people. The unemployed were not a suitable market for that insurance because they could never claim a benefit from it. You can’t lose your job if you don’t have one!

More recently, in May 2023 the Australian Securities and Investments Commission (ASIC) placed its first interim stop order on a super product for deficiencies in its TMD. ASIC considered Spaceship Super’s TMD was too broad and did not properly outline the risks of its product options.

“ASIC made the interim orders to protect consumers and retail investors from acquiring products that may not be suitable for their financial objectives, situation or needs,” the regulator said in a statement.

Spaceship was prevented from accepting new members for the duration of the stop order and announced it would take immediate steps to address ACIC’s concerns.

A TMD is not designed to explain all the features of a product in detail, only its key attributes. The TMD is a good start to get a feel on whether a product will suit you, but to get a full understanding, you should read the Product Disclosure Statement (PDS).

What if I’m not the target market?

If you’re not in the target market for a product you’re considering, it’s worth re-thinking. Perhaps the provider has another product that is more suitable for you. For example, a super fund may state that one of their products is only suitable for people who are working, but another division of the fund could be appropriate if you’re not in the workforce.

In the end though, the decision to use a product is up to you. If you have read the PDS and believe it is right for you, you can go ahead and apply. Not being in the target market doesn’t prevent you from acquiring the product.

If a significant number of people outside the target market acquire the product, the issuer will be required to review the TMD to determine if the description of the target market needs adjustment.