The BMO report is somewhat timely as it comes just before the Canadian Bar Association is expected to release its much-anticipated Futures report at its annual meeting next month, which will address the issue of alternative business structures for law. The Futures committee has been looking not only at ways to foster innovation but how to fund it.
According to BMO survey released today, two-thirds of Canadian entrepreneurs (63 per cent) report the professional services sector — including legal — is an attractive investment opportunity for business owners.
Doug Porter, chief economist, BMO Financial Group, noted, “Over the past 15 years, the professional services group of industries has grown at an average yearly pace of 3.1 per cent after inflation, or nearly a full percentage point faster than the rest of economy over that period.”
“There are many ways investment could happen and that’s what I see as exciting in the BMO report — the interest in investing,” says Fred Headon, president of the Canadian Bar Association, who declined give any hints as to what the CBA’s ultimate recommendation will be. “We’ve certainly been looking at how we could foster innovation in the legal profession and the money to do that and the expertise we will need from others are two important pieces of that. The idea others are looking to offer that up is very encouraging.”
According to the report, nearly half of Canadian business owners (45 per cent) believe the professional services industry is poised for growth over the next five years.
Professional services are defined as professions that require specialized training, such as veterinarians, architects, engineers, and lawyers. According to industry data, the sector achieved the largest increase in job growth last year, with an increase of 85,000; it is now the fourth-largest sector by employment in Canada.
So how do investors gain entry to the legal market? That may be the tough part if the goal is to invest directly to law firms. Headon says the CBA has taken a look at the regulatory framework and the Futures report will address what the organization thinks of the regulatory framework, where it might be standing in the way, and what can be done to “preserve the important values that underlie the profession and services we offer,” he adds.
Despite concerns in the market about the fate of the traditional law firm model there has been recent activity demonstrating a willingness to invest in alternative service models for the profession including the news in March of the $20-million investment in Vancouver-based Clio, which offers law practice management software, and news that Torys LLP opened an office that will do only fixed-fee work Halifax.
“Certainly there is change taking place already and this further interest will hopefully bring the funds and expertise we will need to bring more of that to life,” he says.
Headon says Quebec has some flexibility in terms of multi-disciplinary practices where partners can be professionals other than lawyers, but the rules are “quite tight” elsewhere in the country.
“That will be a limiting factor for those looking to make that kind of investment,” he says. “But it may not need to be an equity stake. The BMO report doesn’t specify but perhaps some of these investors would be interested in a loan arrangement.”
Results cited above come from a Pollara telephone survey with 502 Canadian business owners, conducted between March 7 and March 24, 2014.