The Competition Isn’t Coming, It’s Already Here

In June of 2013, the CBA Legal Futures Initiative issued a report entitled “The Future of Legal Services in Canada: Trends and Issues” (the “Report”). For those who have not read the Report I highly recommend a reading. The report breaks down a wide variety of trends and issues that are important for all those within the profession to be aware of. While there are many important discussion points raised in the Report, the one issue that stands out to me however, is that of competition within the legal marketplace.

The issue stands out for me as one requiring further consideration in that many individuals in the demographic of lawyers that I am most in contact with (solo, small and medium sized firms) consistently demonstrate either a lack of understanding, and/or a lack concern regarding the forces of competition that are changing the delivery of legal services in Canada. A common refrain that I have heard on more than one occasion is “…by the time increased competition affects my business I will be retired.” As the title of this column suggests, and for reasons discussed below, this is a dangerous misread of the situation. As the report notes at page 13 “Not all changes will be immediately evident. Some changes are stark, but others are less perceptible, almost sneaky. Only in hindsight or on retrospection will they be noticeable”.

The attitudes of this demographic of lawyers is worthy of note in that, despite the attention paid to large national and international law firms in the country, the majority of lawyers in Canada still work in solo, small and medium sized firm environments (eg. In British Columbia 52.1% of lawyers work in firms of 5 or less. Source LSBC 2012 Annual Report on Performance).

The Report deals with increased competition in the legal marketplace under a number of different headings and details a variety of possible competitors such as paralegals, global legal publishers and legal process outsourcers. While these and other competitors such as technology companies certainly pose a threat to existing legal services businesses it is my contention that the greatest threat are existing corporate entities such as insurance companies and banks and other existing independent professionals such as accounting firms and notaries. I would further contend that these entities have the potential to have the greatest impact on solo, small and medium sized firms given the high overlap of service areas.

The reasons behind why these existing businesses pose the greatest threat in my opinion include the following factors:

Specialized Knowledge: The underlying purpose for the existing restrictions on the delivery of legal services and the reason for the existence of Law Societies is the protection of the public. Existing entities such as banks, insurance companies and other professionals can mount a very successful argument that they have the specialized knowledge to deliver these services into the marketplace with very little risk to the public. This argument has been used successfully in New Brunswick in regards to the preparation of documents by title insurance companies and most recently in British Columbia by Notaries who are seeking to offer an expanded scope of corporate and estate services.

Existing Customer Base: Existing entities have an existing customer base of clients and will not have to expend the time and energy that a new competitor would in developing client loyalty. In addition, entities such as banks as well as other professionals such as accountants are already the first point of contact in many transactions that require the provision of legal services including lending, estate work, tax and corporate transactions and therefore will have effectively already acquired the client.

Existing Brands: Existing entities such as banks have already established a strong brand presence throughout Canada and are engaged in highly technical transactions and therefore extending the brand to legal services is a natural progression.

Existing Infrastructure: Entities such as banks and other professionals such as accountants possess the necessary infrastructure including branch locations and support centres that would allow for a convenience, client experience and that systems efficiency that most lawyers would not be able to compete with.

Financial Resources: All entities discussed above possess the financial resources to not only carry out the necessary work, but more importantly, the resources to challenge the existing regulatory regime that bars these entities from participating fully in the legal marketplace. A stark example of this occurred in 2007 when First Canadian Title successfully sued the Law Society of New Brunswick for what amounted to monopolist behavior in putting the interests of its members ahead of the interest of the public. An appeal by the Law Society was dismissed in 2009.

Considering the above, I would make the case that the biggest game changers in regards to increased competition in the legal marketplace are existing corporate entities such banks and insurance companies as well as existing professional service providers such as accountants and notaries. Not only do these entities possess the the knowledge, customer base, brand, infrastructure and financial resources to quickly and effectively invade the legal marketplace, there appears to be a growing will to challenge the regulations that prevent these entities from doing so.

Comments are closed.