Self-regulated professions

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Executive summary

Despite comprising a significant part of the service economy in Canada, perhaps as much as one fifth, the professions comprise one of the overall economy's least productive sectors. According to the Conference Board of Canada , professional services rate in the bottom quintile for productivity per hours worked. In addition, labour productivity in the professions in Canada is approximately half that of the professions in the United States. At the same time, the professions are one of the most regulated sectors of the Canadian economy, and the regulation in place in the professions is more restrictive in Canada than in many member nations of the Organization for Economic Co-operation and Development .

Given a considerable body of evidence that shows that reducing regulation improves competition and, as a result, productivity, it is reasonable to ask whether and how professional services could be less regulated in Canada. The Competition Bureau is ideally placed to answer this question, since one of its primary responsibilities is advocating for competition in Canada. On several occasions, the Bureau has advised Canadian regulatory bodies on how to improve their approach to regulation to realize the benefits of competition. The Bureau also has considerable experience investigating anti-competitive behaviour in the professional services sector.

The five groups of professionals—accountants, lawyers, optometrists, pharmacists and real estate agents—the Bureau chose for this study of the self-regulated professions in Canada are vital to the Canadian economy and are of great importance to Canadians in their daily lives. Access to advanced, innovative and competitive professional services is essential for individual Canadians as well as businesses. These professions affect the cost of many other services as well as most goods, including the most basic consumer goods.

These professions are also self-regulated, meaning that they have been given some powers that normally only governments hold. The organizations given self-regulating powers may therefore put in place restrictions that have the force of law. At the same time, these organizations have potentially conflicting concerns and interests—their own and those of the public. This is all the more reason to ensure that competition, from which both professionals and consumers benefit, is protected.

The Bureau selected these particular groups of professionals based on their volume of commerce as well as on the volume of complaints about anti-competitive behaviour in these professions it received, both from the public and from within the professions themselves, which gave it good reason to believe that existing regulation might be restricting competition excessively. However, the Bureau's findings are transferable to other professions, since it is reasonable to expect the type of regulation found in these professions generally exists in others.

Competition and regulation

Competition is generally the best means of ensuring that consumers have access to the broadest range of services at the most competitive prices and that producers have the maximum incentive to reduce their costs as much as possible and meet consumer demand. However, professional services markets are characterized by particular qualities that can justify some form of regulation to protect consumers and ensure service quality. At the same time, there are compelling economic arguments that regulation can have the effect of severely limiting competition, thus preventing consumers from benefiting from the many advantages of a competitive environment.

The Competition Bureau does not argue blindly for competition at the expense of all other policy objectives, since there may be legitimate public interests other than the efficient allocation of resources at issue. The Bureau does, however, advocate that to be effective, regulatory decisions must be fully informed, keeping in mind the many direct and indirect impacts they may have on consumers through reduced competition. Regulation that is excessive or restricts competition more than an equally effective alternative comes at great cost and should be removed or modified.

This is an important message for all professions. Regulators—comprising provincial and territorial governments, and self-regulating organizations—must evaluate regulatory decisions through a balanced, evidence-based assessment, taking into account the numerous channels through which regulation can be beneficial or harmful to consumers of professional services. To this end, the governance structure of each profession must ensure broad representation. It is the Bureau's hope that this study will increase awareness of the competitive impact of regulation in professional services and motivate an expansive deliberation among regulators of the effects—favourable and not—of regulation.

Findings and recommendations

This study is the Bureau's first effort to identify potentially unnecessary and anti-competitive restrictions that exist in a representative group of self-regulated professions and that may well be present in other professions. (The specific examples below are just that, examples to illustrate the Bureau's findings. Chapters 3–7 contain all the recommendations.) The Bureau's recommendations are not based on findings of wrongdoing; rather, they reflect opportunities the Bureau believes regulators should seize.

Restrictions on entering the profession

Most professions maintain substantial entry qualifications, coupled with continuing education requirements. The Bureau found that these qualifications are, in some instances, noticeably uneven across the country.

In general, the Bureau supports the need for entry requirements to assure quality in the provision of professional services. However, any proposed increase to required entry qualifications should be justified as being the minimum that will reasonably ensure consumer protection. Furthermore, jurisdictions that maintain higher standards than others should look to the outcomes of less regulated jurisdictions when defining the minimum necessary level of qualification.

The Bureau was interested to find that the authority to accredit all Doctor of Optometry programs in Canada and the United States rests with the U.S.-based Accreditation Council on Optometric Education, which almost entirely comprises members of the American Optometric Association. The Bureau is of the view that there is a risk that the Council's accreditation policies are formed and evolve based on conditions of supply and demand in the U.S. and do not necessarily reflect conditions in Canada. As a result, provincial and territorial colleges of optometry should consider ways to ensure that the Council takes conditions of supply and demand in Canada into account when developing accreditation policies .

The Bureau also reviewed empirical studies on the effect of market entry restrictions on the price and quality of professional services. Generally, the studies found that the incomes of members of professions with restrictions on entry are higher than the incomes of comparable professionals who do not face restrictions. The effect on quality is unclear.

Restrictions on mobility

Generally, the professions are moving in the right direction with respect to interprovincial and international mobility. In each profession, the majority of provinces have signed a mutual recognition agreement to remove unnecessary barriers to mobility of qualified professionals and to establish the conditions under which professionals registered or licensed in one jurisdiction may have their qualifications recognized in another. Further work can be done to get all Canadian jurisdictions on board and to develop strong dispute-handling mechanisms and consistent implementation of these agreements.

Most professions use various mechanisms to assess the qualification of foreign professionals wishing to have their credentials recognized in Canada. Many of these mechanisms take the form of national organizations that assess basic educational or professional qualifications on behalf of the provinces and territories. However, the pharmacy profession in Canada does not use any of these mechanisms, relying instead on each province to set its own evaluation and entry criteria and assessment process. Given that the roles and responsibilities of pharmacists are essentially the same across the country, there is no apparent reason for the variation in the admission requirements for foreign-trained pharmacists. When the requirements are higher than necessary, the cost of entry can be needlessly high, resulting in fewer foreign-trained professionals applying to become pharmacists in certain provinces and territories.

Restrictions on overlapping services and scope of practice

The Bureau has identified a number of instances in which professionals who provide overlapping services are requesting that their scope of practice be expanded to include one or more activities currently beyond their authorization. Regulators should conduct a thorough assessment of the overall effect of any proposed expansion. A full evaluation should take into account both the potential costs, in terms of public safety, and the potential benefits, in terms of lower prices, increased choice and enhanced consumer access to professional services.

For example, the Bureau learned that members of some accounting designations in some Canadian jurisdictions are not allowed to provide the full extent of public accounting services. Such restrictions limit the number of accountants who can offer this important service and therefore limit competition. The Bureau recommends that regulators reconsider these restrictions so that all accountants who are qualified to provide public accounting services may do so.

Restrictions on advertising

The Bureau has identified numerous restrictions that appear to go beyond what is necessary to protect consumers from false or misleading advertising and, as a result, limit consumers' access to legitimate information that greatly benefits competition. Among these are restrictions that limit the use of certain words and expressions and those that limit the size of advertisements. The Bureau is particularly concerned by restrictions on comparative advertising. Such restrictions obstruct competition between service providers and make it difficult for new entrants to advertise any distinct features of the services they offer, protecting incumbents from the full forces of competition.

The Bureau found many such restrictions on lawyers in many Canadian jurisdictions. Removing these restrictions would go a long way toward bettering this profession's competitiveness. Moreover, the Bureau recommends that the regulators in all professions review existing restrictions on advertising and remove those that go beyond prohibiting false or misleading advertising.

The Bureau also reviewed empirical studies on the effect of advertising restrictions on the price and quality of professional services. Generally, these studies found that restrictions on advertising increase the price of professional services, increase professionals' incomes and reduce the entry of certain types of firms. The effect on quality is small, except that the restrictions may result in fewer consumers using the service.

Restrictions on pricing and compensation

Some regulators publish suggested fee guides, which they claim to be non-binding. Fee guides that are purely voluntary in nature, while unquestionably preferable to any mandatory directive, remain a source of unease from a competition perspective, since they risk facilitating overt or tacit collusion. Given the negative effect of collusion on consumer welfare, the Bureau urges regulators to look to less intrusive means than fee guides to provide consumers with the information they need about prices. In addition, regulators should ensure that any maximum prices they set are not functioning as fixed prices in practice.

In the real estate industry, all provinces and territories but Quebec restrict agents' remuneration to either a fixed amount or a percentage of the selling price. Ontario goes even further and uses the phrase but not both in its restriction, meaning that real estate agents may not, for example, ask for a fixed amount for their initial work and then a percentage of a property's selling price. Such a restriction disallows two-part fees, a type of pricing arrangement one would expect to arise in a competitive real estate market in which some fixed level of work is generally required, but anything beyond it is uncertain. This approach prevents what would otherwise be a perfectly acceptable compensation arrangement that should spur competition among agents, since it maintains the incentive for them to work to get a higher selling price for their clients while ensuring that they will be fairly compensated for the preparatory work they do.

Restrictions on business structure

The Bureau is of the view that certain restrictions on business structure, namely restrictions on multidisciplinary practices between complementary service providers, have the potential to significantly reduce the benefits of competition.

Lawyers and public accountants, for example, appear to be natural complements to one another in terms of the services they provide. By working together, they would also be able to realize business efficiencies. However, the Bureau uncovered some restrictions in some provinces that prohibit or discourage members of these professions from working together or with other professionals in multidisciplinary practices.

Professions justify restrictions on multidisciplinary practices as preventing possible conflicts of interest, which is a laudable goal. However, the Bureau recommends that regulators consider less intrusive mechanisms than an outright prohibition on multidisciplinary practices to circumvent possible conflicts of interest, such as requiring all participants in collaborative relationships to adhere to similar rules of conduct.

Conclusion

An examination of competition in the self-regulated professions is a legitimate exercise at any time, since the right to self-regulate brings with it the responsibility for regulators to consider the greater good in all that they do, including competition.

The professions in general, and those included here, currently face a situation that is rich with opportunities to benefit from increased competition. These benefits will accrue not only to the professions themselves but also, and perhaps more importantly, to Canada and Canadians. This study is, as such, only a starting point. There is ongoing work for regulators to do. For the Competition Bureau's part, it plans to review in two years whether the professions have addressed the recommendations this study presents.