Target Market Documents are an important part of the advice toolkit and can be viewed as a starting point for Consumer Duty, says Caitlin Southall, senior marketing executive at Curtis Banks.
We are now hurtling towards the implementation of the FCA’s Consumer Duty regulations – the centrepiece of their ongoing endeavours towards better consumer protection in financial services. An important tool in the adviser toolkit is the requirement for all product and service providers to clearly define who the intended market is for their products, and document this in the form of a Target Market Document (TMD). Theoretically no client should ever have an unsuitable product again if TMDs are used as intended by the FCA.
That isn’t to say that the client will be in the most suitable or the cheapest product for them. In addition, it doesn’t mean their investment strategy will always be right. But it does mean that a client’s product should have been designed with their needs in mind. As ever, advice will remain a critical part of ensuring clients can reach their retirement goals, with TMDs a central part of the adviser’s process when recommending a product to their clients.
TMDs can be viewed as a starting point for Consumer Duty. They underpin, influence and guide the delivery of all 4 Consumer Duty outcomes: Product and Services, Price and Value, Customer Understanding and Consumer Support.
There are a number of requirements in the Consumer Duty regulations that providers need to meet when it comes to drafting and reviewing their TMD including:
1. TMDs must include a sufficient amount of ‘granular detail’ for an adviser to fully assess the suitability of a product – in essence, what the product is there to do, and who it is designed for
2. All risks to the target market must be defined and explained, including any specific risks for consumers who have vulnerable characteristics
3. Consideration must be given to the target market when assessing the mechanics of the product. As part of this, attention should be given to ensure that the product meets the needs, characteristics and objectives of the target market – in essence, it should be clear who that product is for, and equally as important, who it isn’t suitable for
Additionally, firms should be clear in the distribution of their product and who it should be marketed to. Whilst distribution is not required to be outlined within the TMD, firms are required to ensure that their distribution strategy aligns with the target market.
The FCA guidance regarding the content for TMDs does leave room for interpretation, so you can expect to find differing detail and formats across the industry. It’s important that advisers use TMDs as a part of a wider suite of product documents when assessing whether a product is suitable for a client. Supplemental documentation is likely to include Terms and Conditions and Key Features.
TMDs might seem another regulatory hoop to jump through; however, they provide transparency to advisers and clients about what providers have always known internally about their products.
For advisers, TMDs present an additional opportunity to ensure that clients have products that offer them an opportunity to achieve their pension savings goals and were designed with their needs in mind.
For clients, it is likely to provide additional reassurance when discussing recommended products with their advisers, to clearly see that the recommended product is designed for people like them.
For TMDs to be effective, advisers should ensure that they undertake periodic reviews of a product’s TMD to understand whether there have been any changes to the intended target market. A periodic check by advisers as to the continued appropriateness of a product via the TMD could form part of an annual pension review. The FCA requires firms to review TMDs regularly, taking into account ‘any event that could materially affect the potential risk to the market’. By doing this activity, an adviser can ensure that the product remains suitable in light of changes in the client’s investment strategy as well as regulation, legislation or market activity that may have affected the product.
TMD should prove a useful tool for advisers to ensure that a product is, and remains suitable for their client, and should form a key part of adviser due diligence moving forward. It will be interesting to see how TMDs evolve in terms of content and design although fundamentally we can expect to see the purpose of TMDs remain.
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