Tuesday, May 24, 2022

The Stratafication of Trust – Trusting your strata manager

“Because it’s always been a matter of trust”- Billy Joel

Let’s cut to the chase, trust is the key issue that faces the strata industry and I just got off the phone with a strata manager who told me that I was asking “too many bloody questions!”. Sorry mate, I’m an auditor. That’s my job.

In the wake of a Hayne Royal Commission and a crisis of trust more generally, if the strata industry wants to reach its full potential it needs to operate in an environment of transparency. One trillion in insured assets (not including cash) managed by less than 10,000 employees (that’s roughly $100 million per employee including administrative staff). So how do we give assurance to consumers and confidence amongst investors?  It really is a matter of trust.

Back in 2015 (when the Aussie cricket team still had some credibility) an important line was crossed, that being where attached dwellings exceeded housing starts. Once this line is crossed there is no looking back. And it’s a fact that more than 50% of our population will be living in strata by 2050 with developments increasing in scale and complexity. We’re playing in the big leagues now and the situation demands an appropriate response to governance and independent oversight.

Trust In Crisis

Trust in Australia across government, media, business and non-government organisations is at five year lows. Multiple factors have contributed to the breakdown of trust globally over the last decade. The global financial crisis, pace of technological change and ‘fake news’. Trust issues they say, generally comes from being screwed over one too many times!

The main findings of a Roy Morgan telephone survey conducted last year shows property related professions ranking higher only than advertising people and car salesmen in terms of trustworthiness. I’d probably throw politicians in there somewhere too but let’s not get political.

It’s clear that Owners and Investors want assurance, that’s how markets work. This assurance means they have reliable information on which to base their decisions about what is for many, their most valuable asset.

Read related: What does a strata manager do?

The Pain Of Hayne

We have observed as of late banks and financial companies under the microscope at the Hayne royal commission. Heads have started to roll in the Australian financial services sector.  In this context where breaches of “Duty of care” in a highly regulated sector have been laid bare for all to see we may ask ourselves how would the Strata Industry hold up under such close scrutiny particularly where fiduciary duty has been firmly established? The very thought scares me.

So what is a fiduciary obligation? Put simply, it’s a legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property. Strata management, entrusted with the care of money AND property therefore should be the poster child of fiduciary duty.

That idea of fiduciary duty is part of a wider environmental, social and governance framework and reaffirming the critical nature of this duty is the starting point towards rebuilding lost trust. In largely self-regulated industries such as strata the reasoning that fiduciary duty and full disclosure isn’t equally important is a falsehood. There is room here for some real soul searching where we do things not because we “have to” rather because “we should”.


Brandeis said that “Sunlight…is the best of Disinfectants”. The cure to this malady of mistrust that infects us is transparency.

Strata Management operators being more open and transparent in reporting to owners and other key stakeholders is crucial to building trust. The old treat people like mushrooms approach has gone past it’s expiry date. Transparency in strata should in fact be the accepted norm and another opportunity for professionals to differentiate and “sort the wheat from the chaff”.

Assurance from independent auditors with financial reporting expertise and industry knowledge is being demanded by an increasing number of investors and adds credibility to value story told by the strata manager at the AGM.

Ultimately, the  purpose of transparency is to demonstrate that you are the strata business that you want people to think you are. Well? Are you?

No Dickheads

In order to instil consumer confidence, it is essential to prevent rouge operators causing problems for strata communities and eroding trust across the sector.

Take for example the hypothetical example of an embattled property developer and former deputy mayor with a terrible driving record. Some may be wary of the prospect of him, or one of his associates, being put in charge of a buildings’ trust funds. Although unlikely that he would pass the ‘suitable persons’ test it highlights the relatively low entry barriers to the industry, one which persons of questionable character may gravitate towards for no other reason than the relative ease with which they obtain proximity to trust monies. We need some teeth in the licensing and in some States, we just need to start with some licensing!

Unfortunately the actions of a single morally corrupt strata manager has the power to paint an entire industry with the same brush. But shielded with transparency, trustworthy strata managers are not tainted by association when an individual or company within our industry lacks integrity.

A paradigm shift towards complete transparency may scare the hell out of some operators and may leave a few opportunists wondering if they could best benefit themselves elsewhere in a more “relaxed” environment. Good.

Leaders across the strata industry must meet the rising expectation of transparency as a values based commitment – not simply as a cynical marketing tactic, something that sounds good on a webpage. I know that together we can rise to the challenge.

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