Interesting! Why Managing Agents Should Not Take Clients' Interest as Their Own

This practice not only raises ethical concerns but also runs contrary to established industry standards, including guidance from the Royal Institution of Chartered Surveyors (RICS) and The Property Institute (TPI). In this blog, we explore why managing agents must act in the best interest of their clients and ensure that all financial dealings are conducted with transparency and fairness.

Client Money Must Be Held in Trust

Managing agents typically hold significant sums of client money, including service charge funds, reserve funds, and sinking funds. These funds are meant to cover essential property management expenses and should always be treated as separate from the agent’s own financial accounts.

According to RICS' Service Charge Residential Management Code 3^rd Edition, as well as their Client Money Protection Scheme, managing agents must:

• Hold client funds in designated client accounts.

• Not mix client money with their own operational funds.

• Account for all income, including any interest accrued, transparently.

Similarly, TPI’s Code of Practice for Residential Managing Agents reinforces the need for a clear and honest approach to financial management. This includes ensuring that all interest generated from client funds is either returned to the client or used for the benefit of the property in question, rather than retained by the managing agent.

Why Retaining Interest is Problematic

1. Breach of Trust – Leaseholders and RMC directors trust managing agents to handle their money responsibly. Keeping interest for personal or company gain erodes this trust and damages professional relationships.

2. Lack of Transparency – Many leaseholders and property owners are unaware that their service charge funds may be accruing interest. When agents fail to disclose this information, it raises concerns about hidden financial practices.

3. Regulatory Risks – Failing to handle client funds properly can lead to breaches of RICS, TPI, and even legal requirements, potentially resulting in fines, reputational damage, or even disqualification from professional bodies.

4. Unfair Financial Gain – Interest on service charge accounts may seem small in individual cases, but when aggregated across multiple developments, it can become a significant sum. That money rightfully belongs to the leaseholders and should be used to reduce service charge costs or bolster reserve funds.

Best Practices for Managing Agents

To maintain transparency and uphold ethical standards, managing agents should:

• Ensure all client money is held in designated, interest-bearing client accounts.

• Clearly disclose any interest earned and return it to the client or the relevant service charge account.

• Provide regular financial reports detailing account balances and interest accrued.

• Adhere to the guidance provided by RICS, TPI, and any other relevant regulatory bodies.

Conclusion

Managing agents play a crucial role in maintaining residential properties, and their financial conduct should reflect high standards of integrity. Retaining interest from client funds for personal gain is not only unethical but also runs counter to industry regulations. By ensuring full transparency and fair financial management, managing agents can build trust, uphold professional standards, and provide the best service to leaseholders and property owners.

If you are a leaseholder or an RMC director, it’s essential to ask your managing agent how they handle interest on client funds. A reputable agent will always operate with openness and accountability—anything less should raise serious concerns.

So if you are a Right To Manage Company (RTM) or Residents Management Company (RMC) and can’t see any bank interest shown in your end of year accounts, it might be time to ask where it is, and who is getting it.

Trevor Adey, Director, Placekeeper Management Limited