Friday, July 29, 2011

SHOULD MEMBERS OF PROFESSIONAL BODIES BE ALLOWED TO ADVERTISE?

IN INDIA, MOST PROFESSIONAL BODIES DON’T ALLOW THEIR MEMBERS TO ADVERTISE. REASON: ADVERTISING UNDERMINES THE RELATIONSHIP OF TRUST BETWEEN A PROFESSIONAL AND HIS CLIENT. BUT, IS IT TRUE?

In US, as early as in 1977 the Supreme Court had upheld the right of professionals to publicise and advertise their services. Although in India most professional bodies don’t allow their members to advertise, occasionally there is a clamour for such permission. The code of conduct for practising members of ICAI says that a Chartered Accountant (CA) in practice will be deemed to be guilty of professional misconduct, “if he solicits clients or professional work either directly or indirectly by circular, advertising, personal communication, interview, or by any other means.”

The issue of self promotional advertising rears its head from time to time. The rising tide of consumerism and the state commitment to the philosophy of laissez-faire have together fuelled this move. Those who support advertising by professionals proffer a number of arguments. Thus, the case for self promotion rests on points like; one, advertising will increase demand, innovation, and competition, particularly in the area of routine practice of the profession; two, advertising will make it easier for new entrants to a profession to establish a viable practice; three, advertising will increase the availability and quality of information to consumers; four, advertising will potentially lower the prices of professional services to consumers as a result of increased competition; and, five, inter-professional competition necessitates advertising. Practising CAs supporting the freedom to advertise, for example, say that nowadays the practising members undertake multi-varied jobs from project fi nancing to certifi cation of financial statements. And since this has led to specialisation on the part of the individual CA firms, at least informative advertising should be allowed.

In US when optometrists were allowed to advertise prices fell by about 32% for eyecare products. And no evidence of deterioration in quality of services was found. For routine legal and medical services also, prices in US have fallen since the date permission to advertise was granted. Recently the Parliamentary Committee on Subordinate Legislation in India has taken a serious note of exorbitant fees charged by lawyers, physicians, et al, and proposed to the government to introduce a system of transparency about the remuneration charged by them.

On the other hand, there is a growing feeling in the US that too many legal ads mislead clients by failing to provide correct information on how to hire a lawyer. Many ads, in fact, contribute to distrust on the justice system.

DRAW UP A BALANCE SCORE CARD
Let’s critically examine the arguments against advertising by professionals:  Mass advertising undermines the relationship of trust between a professional and his client: A related corollary thus is that such relationship should not be a result of high pressure advertising. Professional skills can seldom be evaluated by the client. Thus, he cannot ‘shop around’ like in case of  a commercially marketed product to get ‘best bargain’. And since advertising can simultaneously lead to increased supply (in terms of either increased number of professional or they serving more clients by increasing the speed) these professionals will indeed pass on the cost of promotion to the customer.

Second, practice of advertising may mean less incentive to introduce more efficient practices. On the other hand, restriction on advertising will promote non-price competition which in turn should promote innovation and efficiency. Third, a professional service is non-standardised, and so personal that there is nothing to inform except the existence of the professional.

The above arguments can be easily countered. There are two suppositions, both wrong, involved here: One, that there is no advertising information that can reduce a client’s search time, and, two, restriction of competition springs from a concern for the consumers rather than for earning higher profi ts.

In actual fact there are at least some services which are relatively standardised (filing of tax returns, getting uncontested divorces, termination of pregnancies within medically permissible time limits, et al). Besides, without intraprofessional competition innovation is likely to take a back-seat. And even if the services are somewhat non-standardised, while some clients may make a wrong choice, there cannot be an ex-hypothesis case to suggest that the number of clients deciding wrong will exceed these deciding right.

Professional advertising is inherently misleading: It is said that the professional services are so individual in content and quality that meaningful comparison is futile. Second, advertising by a professional does nothing to help the customer make an informed choice because it highlights irrelevant factors; advertising can’t really highlight the competence and quality of a professional service. Well, regarding the first argument, as said above, for routine services fee can be indicated in the ad. And as regards the difficulty of making an intelligent comparison, while the argument can’t be dismissed entirely, it would be really ironic if consumer is denied at least some of the relevant information – even if not complete information – needed to make more informed choice.

Some members of profession will abuse the privilege: They may come out with outrageous ads bringing the whole profession into disrepute. Again, this indeed is a real possibility. But the correct option would be to regulate, and not put a blanket ban on advertising. The regulating bodies already exist so policing such advertising should be quite easy and effective.

Advertising will be done by large players, leaving small firms somewhat maimed: While this charge has lot of a priori merit, evidence from the US (where such advertising is permitted) establishes its falsehood. It has been observed there that larger the firm, less is its reliance on advertising.

But when small firms will advertise, all others will feel compelled to follow suit: Well, if everyone advertises then is such a development necessarily bad or should it be encouraged since it is likely to increase the comparative information available to public? Besides, again taking a cue from US, more than three quarter lawyers don’t advertise despite the option being available.

Professional advertising will have a deleterious effect since it will encourage trivial or frivolous redressals: Empirical enquiries have not found any abnormal increase in unwarranted cases. Besides, in some cases at least, will it not be better for a person to obtain a solution rather than suffering silently.

Advertising costs will be passed on to the clients: As said earlier even if advertising is permitted, not all professionals advertise. So those who advertise can’t possibly afford to raise their prices to recover the advertising costs, more particularly for standardised services like preparation of a will, statutory audit, et al.

Advertising (particularly fee advertising) will lead to lower quality services: The premise here is that advertising will lead to fierce competition and encourage some professionals to cut corners. However, every buyer does not necessarily go for the most inexpensive offer. Of course, advertised product generally has a better image though not necessarily better competence than the unadvertised one. But this difference in competence will have to be marginal; else truth will come out in no time.

Advertising is beneath professional dignity: This, however, is a tenet of faith, and not really an assertion of fact. There are likes of K.Venkataratnam from the Bar who believe “a lawyer is a repository of his client’s trust. And you can’t advertise trustworthiness”. But you have also R. K. Anands from the same Bar who think nothing of this privilege of promotion and opine that regulated promotion will be in the interest of the clients.

TO SELL, YOU NEED TO TELL
Without advertising every profession is covered with a veil of secrecy. Sans informative advertising it becomes expensive for the buyer to sample the varied offers available in the market. Since cost may be high, less searches are undertaken, uninformed choices are made. Being unaware about competitive offers, a consumer will be made to pay up a high price. Besides limited demand in absence of self promotion would mean less probability of enjoying the economies of scale thereby further limiting the possibility to cut costs and reduce prices. Advertising will in fact segment the service providers into low price-low quality group and high price high quality one. The consumer can now exercise his own discretion. Finally, in the absence of advertising the early movers (into the profession) enjoy monopoly rent due to established brand. It is only through advertising that newer entrants can build up their practice and offer the oldies competition.

So, while a complete ban is not justified, some professional control over the content of advertising will protect buyer’s interests. Tightly organised professions have been able to appropriate consumer surplus derived from quality assurance (emanating from certification); this has raised practitioners’ income to inclusion of monopoly rent. Blanket advertising bans arise because of buyer’s weak bargaining power; the ban should be lifted. And big deities’ riches be moderated.

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