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A massive settlement between the nation's largest investment banks and state and federal regulators should be a windfall for independent stock analysts. December 22, 2002 By Scott Horsley, NPR, All THings Considered The deal calls for the banks to pay nearly half-a-billion dollars for independent stock research over the next five years That's a big chunk of the 1-and-a-half-billion dollars the banks will pay to settle charges their own stock research was tainted by conflicts of interest. The independent stock picks could be a benefit for individual investors as well. NPR's Scott Horsley reports. At this time last year, two-thirds of the big Wall Street investment banks were advising their brokerage clients to buy stock in Worldcom. Meanwhile, some independent researchers were already steering clients away from the company, which filed for chapter 11 bankruptcy seven months later. Critics have accused the big Wall Street firms of coloring their research to win lucrative investment banking business. The banks have now addressed that charge by agreeing to supplement THEIR stock picks with those of independent researchers. Kei Kei Kianpoor (kay KEY-an-poor), whose firm Investars ranks stock analysts, says the resulting pool of money should encourage more independent stock research. "I think it would be a tremendous day to become an independent stock researcher...I think there are tremendous benefits associated with that, both for individual investors and for people who might want to go into the independent research business." Half-a-dozen independent research firms have already banded together to offer their advice to Wall Street, as a group. Tim Alward heads one of the companies--Ford Equity Research in San Diego. He says an on-line ranking service will allow investors to see for themselves how well each firm has done tracking a stock in the past. "If you're forced to evaluate your research on performance, it's probably going to be much better research." Up until now, such independent research firms have worked primarily for big pension funds and other institutional clients, who sometimes pay more than 100-thousand dollars a year. Thomas White, who runs the Global Capital Institute research firm in Chicago says that's too much for most small investors to afford. "There's no way we could ever afford to give it to individuals. It's just too expensive. But with this settlement, individual clients will be able to get them free, in dealing with the investment bank." Under the deal, 10 big investment banks will contribute 450-million dollars for independent stock research. That research will then be given to brokerage clients, alongside the banks' own stock picks. The researchers themselves are supposed to remain independent. And Alward says they won't be subject to pressure from investment bankers. ""No, definitely not. And our firm is quantitative in nature. Unless they conned the company into giving us different information, it wouldn't make a difference what they said." The settlement calls for a monitor to guarantee that independence. But skeptics suggest that any research paid for by investment banks might still be manipulated into a tool for selling stock. Scott Cleland heads a group called the Investorside Research Association. His 17 members work strictly for investors, and aren't interested in collecting any money from the settlement. "We's an association of companies that work for investors, not our competitors that are Wall Street investment banks. And we believe you are who your work for." Cleland says individual investors who really want
research that's not tainted by investment banks, must be prepared to pay
for that research themselves. SH, NPR news. |
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800-842-0207 | info@fordequity.com Copyright © 2002, Ford Equity Research, Inc. |
