Regulatory investigations have focused on the potential
conflicts of interest at the handful of large firms that offer
both brokerage and investment banking services. At these firms,
the desire to please corporate
investment
banking
clients had come into conflict with the firms’
responsibility to provide fair stock analysis to individual brokerage
clients.
In 2002, to address this concern, ten major firms
with investment banking businesses reached an agreement with regulators
to improve the quality of their research services in several ways.
Among other things, they agreed to provide brokerage clients with
research from at least three independent sources, and to set up
barriers between the two sides of their business, to prevent investment
banking concerns from influencing research and analysis.
What's disclosed
If you're wary of potential conflicts, you can
always look for full disclosures on any of these firms’
research reports. They list any dealings the firm has with the
companies whose stock they analyze. And you can examine the ratings
distribution data, which include separate information on the stocks
of the firm's investment banking clients, so you can compare the
data with the general ratings distribution and look for bias.
Sam Stovall,
Chief Investment Strategist at Standard & Poor’s
Sam Stovall, 
