Super trustees urged to improve TMD effectiveness after review finds 'poor practices'

ASIC has called on superannuation trustees to improve the effectiveness of target market determinations (TMD) after a sample review of trustee compliance found "some poor practices".

The corporate regulator revealed this week that it had reviewed a sample of 55 TMDs prepared by 27 super trustees across the industry, retail, corporate and public sectors for both accumulation and retirement products.

ASIC commissioner, Danielle Press, reminded trustees that TMDs are an important requirement under the new design and distribution obligations (DDOs) which were introduced to improve consumer outcomes.

"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," Ms Press 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 program. 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."

The review found that said that some trustees adopted specific consumer-centric review triggers, while others were "broad and not specific enough to determine when a review of the TMD would be triggered".

"We recommend trustees consider how insights from complying with their Member Outcomes (MO) obligations (the annual Outcomes Assessment and Business Performance Reviews) are incorporated into their review triggers," ASIC said in a statement.

ASIC did confirm however, that all TMDs described target markets and over 80 per cent described elements of the submarkets for their investment options, including objectives, risk level and minimum timeframes.

However some used broad objectives such as "high growth" or "long term" which ASIC urged against, instead calling for "specific and comparable objectives".

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

"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."

The call-out comes only a month after ASIC placed interim stop orders on three financial firms due to deficiencies in the TMDs for their products.

The interim stop orders prevented Responsible Entity Services Limited (RES) and two companies within the UGC Global Group (UGC) from issuing the relevant managed investment scheme interests or shares to retail investors.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.