If you’re reading the fine print on Australian financial products, you may notice references to a Target Market Determination, or TMD. Let’s take a look at what they are and how they may help you when selecting certain financial products.
What is a Target Market Determination?
Anyone designing or selling a financial product has to make sure it’s being sold to the type of people for which it was designed (the target market). A Target Market Determination outlines which people a particular financial product may be most suitable for, as well as setting out any conditions around how, where, and to whom it can be marketed or sold.
This document is compulsory for most financial products, including home loans, other loans, insurances, and even investment products.
In addition to providing this document, companies must also review their products over time, to ensure they still meet the needs of that target market.
The Target Market Determination will house information like:
- Who’s 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 Target Market Determination will be reviewed
The Australian Securities and Investments Commission (ASIC) enforces these rules, which are called Design and Distribution Obligations, or DDO.
ASIC states 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.”
ASIC states that the 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 Target Market Determination before signing up for a financial product?
It’s recommended you consider the TMD before deciding to purchase, invest in, or apply for a financial or credit product. Most financial products are also required to have certain other documents. For example, insurers have to provide a Product Disclosure Statement or PDS, as well as a TMD.
A Target Market Determination may help you see what type of person or situation the financial product you’re 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, it 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. Similarly, a home loan product’s TMD may help you understand the conditions of the loan, such as if it’s only for first home buyers or investors who are buying a particular type of house with a certain size 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 can 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 product’s Target Market Determination?
Visit the product issuer’s website or contact them directly for a copy of the relevant Target Market Determination. Alongside the TMD, you may find other important documents that should be considered when buying or signing up for a new financial product.
