Understanding Portfolio Management Arrangements and Contracts in Community Association Management

In the world of community association management, “portfolio management” is often mentioned when talking about managing multiple properties or associations. This method is different from on-site management and has specific meanings for management companies, Licensed Community Association Managers (LCAMs), board members, and homeowners. This article will look at how portfolio management works, the idea of contracted time, and what it means for managing properties effectively. We will also share data on the average percentage of annual expenses that management fees should represent in a well-run association.

What Is Portfolio Management in Association Management?

Portfolio management is when an LCAM oversees several associations or communities at the same time instead of focusing on just one property. This method is popular in Florida, where many management companies use portfolio managers to work efficiently and serve various clients.

LCAMs under this approach manage the operations of multiple communities, often working from different locations and dividing their time among properties based on need.

Contracted Time and Hours in Portfolio Management

A key part of portfolio management is the idea of contracted time, which is the number of hours each week or month an LCAM is contracted to work for each community. These hours are detailed in the management agreement between the association and the management company.

• Fixed Hours: Some contracts specify a set number of hours per week or month that the LCAM will work on-site or for the association.
• Variable Hours: Other contracts may offer flexibility, allowing LCAMs to adjust their schedules based on what each community needs. This could mean more time during busy periods like budget season and less during quieter times.
• Bundled Services: Some companies combine services under one fixed fee, which includes a general number of LCAM hours along with administrative and accounting support.

The Role of Board Members in Portfolio Management

In portfolio management, board members have an important role in setting priorities to ensure the LCAM’s time is used well. Their responsibilities include:

• Prioritizing Tasks: Board members should identify and communicate the most important tasks to the LCAM.
• Setting Expectations: Clearly defining the expected work scope and service level within the contracted hours.
• Regular Communication: Keeping open communication with the LCAM to address issues and provide feedback.

Good collaboration between board members and LCAMs helps ensure that the community’s needs are met effectively.

What Percentage of Annual Expenses Should Management Represent?

A crucial financial aspect for associations is the percentage of annual costs allocated to management. In a well-run association, management fees usually account for a part of the annual budget. While there’s no one-size-fits-all answer, industry standards can serve as a guide.

• Typical Range: Management fees generally make up 10% to 15% of an association’s annual operating expenses.
• Smaller Associations: For smaller associations, this percentage might be higher since fixed management costs are spread over less revenue.
• Larger Associations: In larger associations, management fees may represent a smaller percentage due to cost advantages.

Board members should regularly assess management costs as part of their financial oversight. Comparing these costs with industry standards can ensure the association gets value from the services provided.

Benefits and Challenges of Portfolio Management

Benefits:

• Cost Savings: Portfolio management can be cheaper than having a dedicated on-site manager for each community.
• Access to Expertise: Communities gain from the skills and experience of a portfolio manager who oversees multiple associations.
• Flexibility: Allocating time based on community needs allows for a more efficient use of resources.

Challenges:

• Limited Time: LCAMs may not have enough time for each community, potentially leading to service gaps.
• Prioritization Issues: Different associations may have competing demands, making it hard to address all issues quickly.
• Communication: Clear and regular communication between board members and LCAMs is vital to avoid misunderstandings.

Conclusion

Portfolio management is a common way of managing communities in Florida, offering cost-effective solutions for managing multiple properties. Understanding contracted time and how management fees fit into the overall budget is important for board members, LCAMs, and management companies.

By setting clear expectations, keeping open communication, and regularly assessing management costs, associations can ensure they receive the best service and value through a portfolio management arrangement. This results in better operations and a higher quality of life for residents.