› Flat Chat Strata Forum › The Professionals › SCs and strata managers › Are commissions such a sin? › Current Page
@eo@ocn said:
Yes, strata manager commissions are a sin. OCN sees the detrimental outcomes for owners corporations, and opposes this practice on the basis below. But let me emphasise that it’s everyone’s interest to work together constructively to support managers and owners alike through the inevitable transition.Hi, I just wanted to address some of the consumer concerns raised here, just to make sure we are debating this right issue – it reads to me that commissions to Strata Managers (on its own)may not be the problem that needs to be addressed.
If this form of remuneration for a Strata Manager is a sin, why it perfectly OK for an Insurance Broker, who is also a fiduciary to the Owners Corporation (OC), to receive this same income as a commission payment? They are no less conflicted.
- It is not transparent. We prefer a clear fee for service model.
The financial services sector in Australia has a world class disclosure regime, and the PSBAA adds to this for the NSW Strata Sector. The standard SCA Management agency agreement in NSW has on the front page the option for any OC to prohibit their Strata Manager from the receipt of commissions. A simple tick of a box is all that is required. Why is regulatory intervention needed when future EC members question the decisions of past EC members to legally enter into a commission arrangement? Is the problem the difficulty in readily access this type of information, as this could be addressed in a number of ways.
A fee for service model works well for larger schemes, however for small schemes, it tends to add more cost because the fee on a time basis, together with an amount together with the extra administration, exceeds the commission level, and adds costs to these schemes. That is the commission model works best (financially) for smaller schemes. However, all schemes can elect to opt in, or to opt out, when their managing agents agreement is up for renewal.
- It is a conflict of interest (clear disincentive to obtain lower premiums)
There is nothing improper with being in a conflict of interest, it’s how that conflict is managed (disclosed and dealt with) that is important. Insurance Brokers also get remunerated via commission, and are inherently in a position of conflict all the time. It is the professional action they take to discharge their fiduciary duties towards the OC (same goes for the Strata Manager). From my experience, a professional and profitable management contract with an OC over the long term, far outweights any incentive to inflate premiums. Brokers face the same incentive if rewarded by commissions.
- It denies owners the right to good advice *
I am not sure how you conclude that insurance commissions deny owners good advice? I would suggest under-skilled or uninformed professionals (Strata Managers or Brokers) may contribute to owners experience with poor advice. Also, from my experience, unless an OC specifically asks their Insurance Broker to give ‘full personal advice’ on their OC’s needs, they will simply get quotes and insert an advice limitation clause. The OC must properly instruct all their professionals.
- It denies owners choice (steered towards two insurers paying highest commissions)
It is a fact that some insurers will pay brokers a higher commission level (up to 23.5% plus other benefits) than the two
insurance agencies I think you refer to (cap at 20%). But if the 300+ Strata Managers in NSW cannot practice in insurance because of this ban, isn’t that going to deny owners choice?
- It restricts the market (a new insurer, ACE, was squeezed out, and other large and respected insurers cannot get a foothold in this tightly held market)
I repeat my point above, because competition is made up by the number of insurers and the number of distribution points (brokers and agents). You would need to ask ACE why they ceased trading, but feedback from brokers suggested their pricing was very low (profit concerns on their product). I don’t believe it is fair to suggest there are barriers to competition caused by commissions payments alone.
- It restricts competition which is a market-based driver of better cover and lower premiums
Again, competition is not restricted by commissions. Insurer profitability has been the single biggest reason for insurers to either pull out of this sector, or for them not to enter it. It has not been a very profitable class of insurance over the last few years, as seen by consumers through premium and excess increases.
- It denies owners the claims management advantage that brokers, with their large buying power, can deliver
Any agent or broker who has a strong and trusted relationship with their insurers can have leverage outcomes with claims advocacy. If they also have scale in their trading relationship, this can also help.
- Commissions can unfairly inflate strata management client income, for no extra work **
I am sure there are example of that, but equally, smaller schemes can get great value from the commission model – there is a trade-off. My view that unless any professional (commission or fee) demonstrates value, any relationship with an OC is unlikely to be enduring.
- Commission-inflated premium is then taxed – grossed up by FSL, Stamp Duty and GST.
I agree, a pet hate of mine, insurers tend to be in the tax collection business! But, unless you ban commissions across the sector (rather than just strata managers) this very problem will continue to exist.
I hope this adds to the debate and understanding, because we all ultimately work for the OC (and their owners) and addressing consumer concerns is important. We need to demystify, educate, evolve and improve for the benefit of all. A simple ban on commission for Strata Managers won’t get us there as a sector.
Nelson.