Analysts independence in the spotlight

By Phil Boeyen, ShareChat Business News Editor

Friday 24th August 2001

The New Zealand Society of Investment Professionals is backing calls for increased disclosure by investment analysts.

The society is urging local stock broking firms to review their internal procedures and practices in order to ensure that stock analysts' reports and recommendations are objective.

It also wants brokers to make sure that all existing and conceivable future conflicts of interest are disclosed to clients.

The call comes after news that the Association for Investment Management and Research is planning to issue new guidelines to preserve the integrity of investment research.

NZSIP is the local chapter of the association and president, Louis Boulanger, says the situation here is similar to that in the US, where the question of objectivity is currently the subject of heated debate..

"The US Securities and Exchange Commission recently warned investors to treat analyst advice with caution, whereas Congress held hearings as to the quality of analysts' research in the wake of the fallout of the technology stock market collapse.

"Some members of Congress have threatened legislation if firms don't produce credible reforms."

Mr Boulanger says it is acknowledged within the industry that analysts are pressured to make positive recommendations.

"It is important that the investing public is aware of the nature of any association between a stockbroking firm and the company on which research is published," he says.

"Additionally, the companies themselves must be made aware that it is not acceptable to pressure analysts to issue favourable recommendations."

Mr Boulanger says the practice of denying analysts who issue unfavourable recommendations equal access to company management and briefings must also cease in order to restore investor confidence in the integrity of stockbroker reports.

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