Which of the following statements about fees charged by Financial Advisers in Australia are TRUE: Financial Advisers are allowed to charge a fee for the preparation of a financial plan and also hourly fees for ongoing advice provided to clients. Financial Advisers are allowed to receive a commission on an investment product that they recommend to clients as a percentage of funds invested.

Question

BlackTom AI · Accepted Answer

Under the Future of Financial Advice (FOFA) reforms and the Corporations Act framework, advisers may charge clients direct fees (for example a fee to prepare a financial plan and hourly fees for ongoing advice) but are generally prohibited from receiving conflicted remuneration from product issuers such as commissions tied to retail investment sales.

1) Relevant knowledge points and concepts
- FOFA and related Corporations Act provisions restrict conflicted remuneration (commissions, volume payments) on retail investment products.  
- Advisers may operate on a fee-for-service basis: fixed fees, hourly rates, or client-agreed percentage-based fees billed to the client are allowable when disclosed and consented to.  
- Distinction: a fee charged by the adviser to the client (allowed if disclosed) versus a commission paid by a product provider to the adviser (conflicted remuneration, generally banned).

2) Step-by-step reasoning
- Statement 1: "Financial Advisers are allowed to charge a fee for the preparation of a financial plan and also hourly fees for ongoing advice" — this aligns with permitted fee-for-service arrangements. Advisers commonly charge an initial fixed planning fee and ongoing hourly or retainer fees; these must be disclosed in a Fee Disclosure Statement or client agreement. Therefore statement 1 is true.  
- Statement 2: "Financial Advisers are allowed to receive a commission on an investment product ... as a percentage of funds invested" — this describes a commission paid by the product issuer tied to the amount invested. Under FOFA/conflicted remuneration rules, such commissions on retail investment products are not allowed (subject to limited transitional exceptions historically). Thus statement 2 is false.

3) Calculations
- None required.

4) Why the correct answer is correct
- The regulatory framework permits charging clients directly for advice (including plan preparation and hourly ongoing fees) but prohibits advisers from taking commissions from product providers that create conflicts of interest on retail investment recommendations.

5) Why other options are incorrect
- "Neither true": incorrect because statement 1 is true.  
- "Only statement 2 is true": incorrect because commissions from product issuers are generally banned.  
- "Both true": incorrect because statement 2 is false.

6) Conclusion
Only statement 1 is true — this matches the provided correct answer: "Only statement 1 is true."

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