The world of financial products can be complex. Navigating through the maze of providers, offers, conditions and jargon can sometimes be a challenge for the everyday consumer, which is why the Australian Government often passes laws designed to help people better understand what they are signing up for or buying.
To this end, a range of new laws were introduced on 5 October, 2021. These included a requirement for providers of most financial products to produce a Target Market Determination (TMD) for each of their products, and to make this available to anyone considering buying, investing in or applying for their products.
What is a Target Market Determination (TMD)?
A Target Market Determination (TMD) is a document that explains which people particular financial products may be suitable for (the target market) and sets out any conditions around how financial products can be distributed to consumers. TMDs are compulsory for most financial products.
The TMD includes information such as:
- Who is likely to buy the product, including details such as their ability to meet their financial obligations and endure financial losses
- How and where the product will be sold
- When and how the TMD will be reviewed.
The Australian Securities and Investments Commission (ASIC) enforces the new rules, which are called Design and Distribution Obligations, or DDO. It states that issuers and distributors “must take reasonable steps that will, or are reasonably likely to result in financial products reaching consumers in the target market defined by the product issuer”. In other words, anyone designing or selling a financial product has to make sure it is being sold to the type of people for which it was designed. Companies must also review their products over time, to ensure that they still meet the needs of that target market.
ASIC states that the new obligations “require issuers and distributors to take a consumer-centric approach — placing consumer outcomes front and centre at the product design, product distribution, and monitoring and review stages of the product life cycle”.
Should I read the TMD before signing up for a financial product?
It is recommend that you consider the TMD before making a decision to purchase, invest in or apply for a financial or credit product. Most financial products are now required to have a TMD in addition to any other documents that already needed to be provided (such as, for example, a Product Disclosure Statement or PDS, for applicable types of products like insurance).
The TMD may help you to see what type of person or situation the financial product you are researching is likely to suit, and whether you fit into that category. It could therefore help you work out if the product is a good fit for your needs. For example, for a home and contents insurance policy, the TMD may contain details about what types of homes it could cover, and if it would cover you if you ran a business from your home. Likewise, a home loan TMD may help you understand the conditions of that loan, such as if it is only for first home buyers or investors who are buying a particular type of house with a certain deposit.
It’s a good idea to read all the documents provided to you when considering a financial product, and to research other products or offers on the market so you are able to compare them against your needs and budget. You may also want to consider seeking suitably qualified professional advice.
Where can I get a copy of a TMD?
Contact the product issuer directly for a copy of the TMD that applies to the product you’re considering. You may also find it on the provider’s website, along with other important documents that should be considered when buying or signing up for a new financial product.
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