Fee-Only vs Commission-Based Financial Advisers

How your financial adviser is paid matters — it can influence the advice you receive and the total cost. In Australia, there are three main fee structures:

Fee-only: You pay the adviser directly through flat fees, hourly rates, or a percentage of assets under management. The adviser receives no commissions or payments from product providers.

Commission-based: The adviser earns income from commissions on financial products they recommend. Since the Future of Financial Advice (FoFA) reforms in 2013, commissions on investment and superannuation products have been largely banned. However, commissions on insurance products (life insurance, income protection, TPD, trauma) are still permitted.

Hybrid: A combination of direct fees and commissions, depending on the type of advice and products involved.

The Future of Financial Advice (FoFA) reforms (voluntary from 1 July 2012, mandatory from 1 July 2013) introduced several key protections for consumers:

• Best interest duty: Advisers must act in the best interest of their clients when providing personal advice
• Ban on conflicted remuneration: Commissions on investment and superannuation products were largely banned
• Opt-in requirement: Clients must actively agree (opt in) every two years to continue paying ongoing fees
• Fee disclosure statements: Advisers must provide annual statements showing fees charged and services received

These reforms significantly changed the advice industry, shifting most advisers toward fee-for-service models for investment and super advice. Insurance advice remains an area where commissions are still common.

Here are the common ways financial advisers charge:

Many advisers offer a free or low-cost initial consultation so you can assess whether they're a good fit before committing.

• Fee-only advice:**
• Pros: No conflicts of interest from product commissions, transparent pricing, aligned incentives
• Cons: Upfront cost can be a barrier, may feel expensive for smaller portfolios

• Commission-based advice:**
• Pros: May have lower or no upfront cost, accessible for insurance-focused needs
• Cons: Potential conflicts of interest, may not cover all advice areas, harder to compare total costs

• Hybrid advice:**
• Pros: Flexible, can combine the best of both models
• Cons: More complex fee structure to understand, need to monitor total costs

The best fee structure depends on your needs, the type of advice required, and how much you're comfortable paying upfront versus over time.

Before engaging an adviser, ask these fee-related questions:

• What is your fee structure — fee-only, commission, or hybrid?
• What will the total cost be for the advice I need?
• Are there ongoing fees, and if so, what do I receive for them?
• Do you receive any commissions, referral fees, or other payments from product providers?
• Can I see a breakdown of all costs before I commit?
• What happens to fees if I decide to stop using your services?
• Do you offer fee options (e.g., hourly vs flat fee)?

All fees must be disclosed in the Financial Services Guide (FSG) and Statement of Advice (SOA). If an adviser cannot clearly explain their fees, consider looking elsewhere.

Consider these factors when deciding:

• If you need comprehensive advice (investments, super, insurance, estate planning), a fee-only adviser with a flat fee or percentage of assets may provide the best ongoing value
• If you primarily need insurance advice, a commission-based model may work well, as the commission is built into the insurance premium
• If you have a specific one-off question, an hourly rate or fixed-fee single-issue service is likely most cost-effective
• If you have a smaller portfolio, look for advisers with flat fees rather than percentage-based fees, which may have minimum thresholds

Remember: the cheapest advice is not always the best advice. Focus on value — the quality and appropriateness of the advice relative to the cost.