At the Crossroads: The End of Hidden Commissions in Strata Management

NSW strata managing agents are standing at a fork in the road. The choice they make about how they get paid will define the industry for the next decade. At the heart of the matter is a simple question: should agents be paid directly by their clients for the work they do? Or should they continue to clip the ticket on insurance commissions and other conflicted income streams that most owners don't understand and can't see?

The industry's business model is under serious scrutiny, and the writing is on the wall. The days of quietly making money from insurance commissions, broker fees, and related-party services are numbered. If strata managers want owners' trust, they will need to adopt a new model. A model where the only money they make is money their clients can see and understand.

Nicole Johnston's recent Strata Knowledge report, At the Crossroads: Addressing Pervasive Conflicts of Interest in Strata Management, makes an uncomfortable argument: the existing business model too often puts agents' financial interests ahead of owners corporations’. This has become a structural problem, not just a matter of a few bad actors.

The report documents how strata management businesses commonly rely on 'hidden' or poorly understood income. Insurance commissions are the most obvious example. But the list goes on: shares of broker fees, referral payments from suppliers, and revenue from related entities providing repairs, facilities management, or other services to the same schemes they manage.

The concern is straightforward enough. If a managing agent earns more by choosing one insurer, broker, or related supplier over another, owners can’t be sure that recommendations are being made in their best interests. This matters particularly now, when insurance premiums are climbing sharply and levy funds are under pressure.

Johnston also highlights the information asymmetry built into the current model. Owners corporations often do not know what their manager is being paid behind the scenes. They cannot easily compare alternatives. They might lack the time or expertise to question conflicted practices hidden in dense agency agreements. That erodes trust and fuels a sense that the system is rigged against ordinary lot owners.

Johnston frames this as a genuine crossroads for the industry. Strata managers have two choices. They can double down on disclosure and self-regulation, hoping transparency will lead to better-informed owners and market discipline. Alternatively, they can progressively ban commissions and conflicted payments. Instead, they would use clear, fee-for-service remuneration.

The policy momentum is clearly moving towards the second option. The NSW Productivity and Equality Commission is examining a possible prohibition of insurance commissions. SCA NSW, the industry's peak body, has recommended phasing out insurance commissions for its members. Instead, they propose switching to fee-based charging. The direction of travel is unmistakable.

The problem with insurance commissions is not just that they create conflicts. They undermine the fundamental relationship between agent and client.

In any professional service, clients should be able to trust that their adviser's advice is in their best interest, not just what benefits the adviser most. When your lawyer recommends a course of action, you trust they’re not thinking about generating more fees. When your accountant structures your affairs a particular way, you assume it's because it's tax-effective for you, not because they get a kickback from a related entity.

Strata management should work the same way. When your agent recommends an insurer, you should be confident it's because that insurer offers the best combination of cover, service, and price for your scheme, not because it pays the highest commission. When they suggest a contractor for repairs, you should trust it's because they're qualified and competitively priced, not because they're a related party that funnels profit back to the management business.

The current model makes that trust impossible. Even when agents act in good faith and offer independent advice, owners can’t be sure.

Moving to fee-for-service is simple in theory. However, it will need significant changes in how strata management businesses operate.

Agents would charge a transparent fee that includes all the work they do. This would replace the base management fee and hidden commissions. The agency agreement would clearly set out the fee, so owners know exactly what they’re paying for.

If owners want additional services like project management for capital works, insurance tendering, or help with dispute resolution, these would be quoted and charged separately, like any other professional service.

The key is transparency and alignment of interests. The agent makes money by doing good work for their clients, not by directing business to preferred suppliers. If an agent recommends an insurer, it's because it's the best option. The agent wants to keep their client happy and has no other financial interest.

Predictably, there is resistance from parts of the industry. The arguments tend to go like this: commissions allow agents to keep base fees lower, which makes strata management more affordable. Banning commissions will lead to higher visible fees without real savings for owners. Proper disclosure already exists, so this is a solution looking for a problem.

These arguments don't withstand scrutiny. The money has to come from somewhere. If agents earn $X from base fees and $Y from commissions, banning commissions means the new fee will be $X + $Y. Owners won't pay more overall; they'll just see exactly what they're paying.

As for disclosure, anyone who's read a standard agency agreement knows that technical disclosure buried in legal documents is not the same as meaningful transparency. Most owners don’t know what their agent earns from insurance commissions. Even if it's disclosed, they lack the context to know whether it's reasonable or excessive.

Here's the thing that often gets lost in this debate: good agents should welcome the shift to fee-for-service, not fear it.

If you're a strata manager who always puts your clients first, gives solid advice, and offers great service, then you shouldn't worry about transparency. You should embrace it. It sets you apart from the agents who rely on hidden income and conflicted arrangements.

Under a fee-for-service model, your value proposition becomes clear. You're not the agent who clips the ticket and hopes owners don't notice. You're the expert who charges a fair fee for quality work. Owners can see exactly what they get for their money.

That's a much better base for a lasting client relationship than the current model. In the current model, even honest agents face suspicion due to the industry's structural conflicts.

The crossroads Johnston describes are real, but the path forward is getting clearer. Insurance commissions will be phased out, whether by regulation or industry self-reform. Other conflicted income streams will come under similar pressure. Transparency will become the baseline expectation, not an optional extra.

Strata managers perform vital work and deserve to be paid fairly. The question is not whether they should be paid, but how. The model that has served the industry for decades is reaching the end of its life. It’s not just because of a few bad actors. It is fundamentally incompatible with the trust needed in professional service relationships.

The agents who recognise this early, and adopt transparent, fee-for-service models, will thrive in the next era of strata management. Those who cling to the old model of hidden commissions and conflicted income will fall behind. They won’t meet owners' expectations, policy directions, or their industry body's commitments.

The fork in the road is here. Choose wisely.