Be Your Association’s Financial Leader

Be Your Association’s Financial Leader

By Ron Peck / Published August 2020

Photo by

Summer of 2020 has arrived. Many of us have experienced unprecedented isolation and mandates in response to the COVID-19 pandemic. Managers and boards of directors (BOD) have faced a myriad of challenges including loss of jobs, possible delinquent assessments, mortgage deferments, etc. These challenges could result in revenue losses for associations. However, stay focused and remember that associations are created for the sole purpose of maintaining and preserving the association property values.

Serving on a BOD for an association is a privilege and can equally be a difficult responsibility. It is a volunteer position that can feel daunting and unappreciated at times. This can be true specifically for new board members who are tasked with taking certification classes, learning meeting procedures, and handling past and current association issues. Even for the most seasoned of board members, this role can bring significant challenges, especially if you fail to rely on the right professionals to assist you. A superior strategic team surrounding you is the key to any business’s success. Remember, your association is a business; a nonprofit business, but a business. The proper team isn’t just composed of your active board members but also your management company professional, accountant, legal advisor, banking professional, insurance agent, reserve study specialist, and other key strategic partners.

As an association, it’s important to stay 100 percent focused on this statement: Associations are created for the sole purpose of maintaining and preserving the association property values.

In many ways this is your mission statement. All of your collective decisions should be determined with this in mind. As a member of the BOD, you are always concerned with your fiduciary responsibility of being a good steward of your unit owners/shareholders’ investment in the association. For this reason, it’s often thought that doing something in the least amount of time and for the least amount of cost to the association will be the best option and will generate a positive response from your unit owners. This is not always true. What do you think “You get what you pay for” means? It is important to research and compare products, bids, and services based on quality, delivery, and satisfaction. Cheaper is not always the best way to go. Many times, the additional cost on the front end saves an association a lot of dollars and headaches down the road. Be thoughtful and aware in comparing products and services.

Boards of directors have a fiduciary responsibility to make sure there are standards for presenting a summary of association reserves. This should include a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each item based on the straight-line accounting method. Annual budgets shall include reserve accounts for items such as roof replacement, pavement, painting, and other items with a replacement cost exceeding $10,000. However, funding for these accounts can be waived by the majority vote at a duly called meeting. It is advisable to present all the facts to the unit owners to support fully funding reserves. Transparency brings “buy in” from unit owners.

Florida presently has no statutory requirement to conduct a reserve study. However, reserve studies are the best tool to determine the real costs of ongoing replacement of common elements, especially for condominiums and large homeowners associations. Reserve studies are composed of two parts—a physical analysis of the components, and a financial analysis that will maintain the fund appropriately. A reserve study is an important tool in making fiscally responsible decisions.

With approximately just fewer than 50,000 community associations in Florida, only about half have chosen to complete a reserve study, whether formal or informal, and even fewer have a formal investment plan or policy. Many associations want the assessments to stay the same and are proud they haven’t changed the assessment for years. Associations need to have the fortitude to stand tall and honor the following decree: Associations are created for the sole purpose of maintaining and preserving the association property values.

Once the BOD has prepared a budget with fully funded reserves, the next step is to deliver the information to the unit owners. It is paramount to disseminate information in a way that honors the community. You have to appeal to the unit owners’ senses, making them feel valued, heard, and trusted. Be committed, steadfast, and clear about the reasons behind fully funding reserves. Emphasize that they are essentially protecting their largest personal investment. There will always be a few unit owners who have lived in the complex a long time with limited resources. The more set in one’s ways, the more resistant to change one becomes. Resistance to change is normal. In the decision-making process, the needs of the whole community of unit owners should be taken into account. These decisions are not always easy. Tough decisions need to be made. If you’re not making money on your money, then you’re just a candidate for an association loan that will cost you even more money in the long run or continual special assessments many unit owners simply can’t afford.

Ok, now that I have your attention, let’s talk investments.

Do you have a formal investment policy? If not, this would be a valuable tool for your association. This policy could be developed by an investment committee and then adopted by the BOD. The policy should include at a minimum safety of principal, liquidity of principal, yield, and risk tolerance provisions. This provides vision and purpose.

Your first priority is to maintain principal and minimize risk. Next is to maximize return with minimal risk. It is not advisable to take on any additional risks in your investment decisions with your association.

Your safest investments are as follows:

  • CDs up to $250,000 and laddering of your CDs with your strategic banking partner with FDIC insurance
  • Money Market accounts
  • ICS/CDARS (Insured Cash Sweep/Certificate of Deposit Account Registry service)
  • Government treasury securities
  • Government bonds

CDs are your traditional investments for associations. They are insured by all federal depository institutions up to $250,000 per tax id with the FDIC (Federal Deposit Insurance Corp.). Money market accounts are included in the maximum amount of $250,000 per banking institution. So, it becomes difficult for many associations to fully protect their assets with just one bank. While personal account holders have options to insure more than $250,000, in the way their accounts are structured, associations do not have this solution. Each association only has one tax identification number; therefore, only $250,000 is insured.

Laddering CDs allows you to make alternate terms for maturity to match various capital projects or replacement of components on your reserve schedule. The longer the CD term, typically the higher the interest rate.

An important reminder to readers is that the banking industry is at their highest of capital requirements since the 2007–08 banking crisis. So, generally, you should be safe with any bank if you’re above the $250,000 mark. Thousands of banks are at a five-star rating with the various bank rating sites. However, stick with a bank that understands your association needs. Do not be lured into higher risk products with other institutions. Stay invested, stay safe.

Promontory Interfinancial Network offers ICS/CDARS and has been around since 2003. It is an excellent source of placing money in excess of $250,000. It allows banks to reciprocate deposits with approximately 3,000 federally insured banks with the benefit of a successive BOD signer with just one banking institution. Rates are competitive, but remember, we are in a very low interest rate environment and it is about safety of principal, return of interest, then convenience. Visit for a more extensive summary.

Moving on to more sophisticated investments should only be done by professionals and would only be recommended in specific situations. Government treasuries and government bonds are only backed by the full faith of the United States of America and are not federally insured. Additionally, surety bonds are not FDIC insured. A good rule of thumb is if you can’t explain it in less than a sentence or two, don’t invest in it. Your unit owners will not understand the implications of these investments. Keep it simple.

Bottom line…Be a leader in representing the financial health of your association. Select an experienced association banking partner to help navigate you through your investments. Don’t be afraid to raise the assessments accordingly to adequately fund your reserves, even if it’s not popular. In the long run, your unit owners will be happy they’re getting the rich enjoyment of nicely kept amenities while enjoying the best market valuation of all of your units.

Ron Peck

Senior Relationship Manager, Centennial Bank

Ron Peck is a Sr. Relationship Manager with the Association Banking Group of Centennial Bank. Ron works with associations in Central and Northern Florida and is a licensed community association manager in the state of Florida.
For more information, call (561) 354-4287, email, or visit