70% of strata companies can't survive without a conflict of interest. Is yours one of them?
Are insurance commissions costing your strata scheme more than you think?
If you own a unit or apartment in NSW, there's a reasonable chance your strata manager is being paid twice.
Once by you – through the management fee your owners corporation agreed to. And again by your insurance broker – through a commission based on the value of the premium for the insurance policy arranged for your building.
That second payment doesn't show up on your levy notice. It doesn't come up when comparing fees with other agencies. It gets quietly collected in the background, year after year, while your manager sits across the table from you presenting insurance quotes they have a financial interest in you accepting.
This isn't a fringe practice. It's standard. And it just became very hard to ignore.
What happened
Earlier this month, it emerged that Australia's largest strata management company – with a 10% national market share and 26 different brands – lobbied a government-backed review panel in secret to prevent insurance commissions from being banned. Their submission was kept confidential, away from public scrutiny, while owners and consumer advocates were calling loudly for exactly that ban.
The argument they made? That 70% of strata management companies would collapse if they couldn't take commissions anymore.
Read that again slowly.
The industry's biggest operator just told a government panel that the majority of strata companies cannot survive without revenue that comes directly from a conflict of interest with their clients. And rather than treating that as a crisis of business model, they treated it as a reason to keep the practice going.
The review panel – and the experts behind it – disagreed. They cited the findings of the Hayne banking royal commission, which found that disclosure alone is often ineffective in addressing conflicts of interest and protecting consumers. In other words: it doesn't matter that some managers tell you about the commission. The conflict exists either way.
Why it matters to you
Here's the practical reality. Your strata manager engages an insurance broker for your building to arrange your building's insurance. The broker gets paid a fee by the insurer based on a percentage of the premium, and then a commission is paid to the strata manager – typically somewhere between 10 and 20 percent – by the broker. The insurers and brokers know about the commission, and add it to the premium you would otherwise pay. The higher your premium, the more they earn.
They are not incentivised to find you the best policy. They are incentivised to find you the most expensive one they can justify. You might never know it happened. And even if they tell you, you have no way of knowing whether that disclosure changed their recommendation, or just made the conflict visible.
For a large building, this isn't small money. Insurance premiums on a 100-lot residential scheme can easily run to $100,000 or more per year. A 15% commission on that is $15,000 that wouldn't exist if commissions didn't – money added to your premium specifically to fund your manager's income.
The honest truth
The fact is that the commission is used by your agent to cover their overheads. If they don’t collect the commission, they’re going to have to cover those costs by increasing their fees, so you will be paying one way or another.
The problem, however, is that the overheads are largely fixed; they don’t increase just because your premiums jumped. This means that any amount not spent on overheads goes straight into profit at your expense. Because this profit margin exists, there is a conflict – perceived or real – that your strata manager and/or broker is incentivised to present more expensive quotes to you to create an illusion of choice.
To be fair, many brokers and strata managers don’t try to maximise profits in this way, and sincerely try to do the right thing by their clients. The question is whether you think you can trust that your agent is one of those doing the right thing, and that they won’t change tactics in future.
What you can do about it
The more useful question isn't whether your manager takes commissions – in NSW they're legally required to disclose them, so that answer is almost certainly yes. The real questions are: how much are those commissions actually worth, and what happens if they disappear? Get the total commission figure for the last 12 months and add it to your management fee – that's what you're actually paying.
Ask yourself whether the service you receive is worth that price, and then ask yourself whether your manager's business survives if commissions are eventually banned. The industry's largest operator just told a government panel that 70% of the sector collapses without them. Your building deserves a manager whose business model doesn't depend on that answer.
If you're on the strata committee, this is worth pursuing. In practice, it's usually the committee who does the legwork – getting quotes, comparing proposals, making a recommendation. The owners corporation has the final say, but they generally follow the committee's lead. That means the push for change, if it's going to happen, starts with you.
Our position
Athos Strata does not accept commissions, referral fees, profit shares, or any other payment from any insurer, broker, contractor, or supplier – disclosed or otherwise. We are funded entirely by the fees agreed with the owners corporations we manage. Nothing else.
That's not a marketing claim; it's written into every management agreement we sign.
We didn't build our business around commissions. We built it around the premise that the only way to give genuinely independent advice is to have genuinely independent income. If that means our base fees are higher than a manager who supplements their income elsewhere, we think that's a trade worth making. Our clients can make that call with full transparency, and the confidence that we’re not going to disappear because a conflict of interest was prohibited.
If you'd like to talk about what your building is actually paying for its strata management, and what you can do about it, we're happy to have that conversation.
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