404. How We Can Get Strata Management Right, Right Now
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Daniel Holt, strata manager, joins me, calling out the ‘gaslighting’ that he says has been going on in the strata management industry, with the real cost of managing a strata building hidden behind sophisticated third-party payment arrangements extending beyond insurance commissions.
Hi Amanda
Great interview with Daniel.
Our firm, Horizon Strata, established in Melbourne early 2020. I am a 40 year member of the Institute of Chartered Accountants who ran an accounting practice for 20 years. I was astounded at the commissions being taken by OC Managers and thought pointing out this issue to Committees would be a winner. We initially joined the SCA but subsequently resigned due to their stance on insurance commissions. There is actually no rational relationship between hours required on insurance work and an insurance commission, no matter how sophisticated the structure is. In fact the greater degree of sophistication the greater the deception to Owners. We have managed to build a business in Melbourne without commissions or kickbacks but it has required a lot of explanation. We even lay it out clearly on our website. Like Daniel, we get eliminated from tenders in a lot of cases due to these deceptive practices. It is extremely frustrating.
There are other deceptive arrangements gong on in the industry and in my opinion the road map to eliminate all these practices is better legislation including better reporting and audit requirements for OCM companies. I would also suggest that the governing body (SCA) needs to be restructured in such a way that it is not totally governed by people who are historically entrenched in these long standing practices.
Hello Amanda,
Thankyou also to both Reena and Daniel for putting the spotlight on insurance commissions and other conflicted incentives. Whether there is transparency or not, a strata manager receiving such inducements is conflicted in the performance of their duties under the agency agreement they sign with their owners corporation clients.
Our business provides support services to owners corporations and strata committees with one of these being running tenders for strata management. An essential condition of any tender we conduct is that the Agreed Services Fee proposals we seek are calculated on the basis that the manager either receives $nil commissions or rebates any commissions it receives.
Seldom have we had to persuade our owners corporation clients that “No Commissions” should be the tender basis. They get it straightaway. That no doubt is because the profile of an owners corporation that seeks outside help in running a tender is that of an OC which has already given thought to both the need for unconflicted remuneration and the fallacy of the lowest Agreed Services Fee being the most competitive.
Interestingly the vast majority of the strata management companies we have approached at tender have been willing to tender on a no commission basis, even if it was not their default position. This gives hope for the future.
As your guests pointed out, there is a large section of the strata management industry still wedded to the commissions model. There are also a large number of owners corporations still wedded to the fiction that signing agreements which allow strata managers commissions is going to save them money with no downside. Our experience, however, suggests that owners corporations are slowly waking up to realise that “there is no free lunch”. The ABC program went further in making strata owners aware that the “free lunch” contains some unpalatable truths.
Thanks Amanda for the information!
I believe that Fair Trading made a mess helping Investors/Developers since it took over our lives in strata living.
They created the mess so they should make sure that we are not ripped off and clean it. How can people be able to afford to pay the new Debt Collectors fees? That like in my case are operating in Tasmania.
Thanks again!!
John Trowbridge in his review of Insurance/Commissions in Strata make comment that it is now always true that all properties will see a reduction in their Insurance Premium even in the absence of commissions. How do you explain to those properties that the discounts that they saw in their management fee since commissions were available are now gone by their premiums have not reduced?
As a strata manager I am mindful of these future conversations where some properties may feel they have been gaslit into believing that they were already paying for the “higher fees” but the premiums don’t show this when commissions are removed.