WALL STREET Settlement focuses on information

Investors will receive reports from independent researchers.
NEW YORK (AP) -- With nearly a third of the $1.4 billion Wall Street settlement going toward independent research, many firms that provide stock analysis are preparing for a windfall. But some observers question whether more information will really help investors.
One of the first places investors will see the effects of the agreement announced last week is in their mail boxes. Within several months, routine mailings from brokers, such as trade confirmations and periodic reports, will include ratings for the stocks they hold -- both from the brokerage firm and from independent research houses.
Established independents such as Morningstar Inc., Value Line Inc. and Standard & amp; Poor's seem the most likely candidates to supplement coverage from the 10 Wall Street firms, but many smaller independents are hoping to get a share of the $432.5 million to be spent over the next five years.
Informed decisions
"It certainly will allow a person to see the information they need in order to make an informed decision," said Thomas White, president of Best Independent Research, a consortium of firms that is vying to be among the new providers. "When something is overvalued, there will be more signs that you should avoid it."
The firms agreed to provide their investors with independent research as part of a deal to settle charges that their own analysts were biased by banking interests. The amount for research is greater than the $387.5 million fund to repay lost profits and dwarfs the $80 million investor education budget.
Under the deal with government regulators, independent consultants for each of the firms will hire at least three independent research houses to produce stock analysis for investors.
The consultants, who must be hired by May 28 and approved by the Securities and Exchange Commission, will report annually to regulators.
The three firms with the most retail customers are making the biggest contribution to research -- Citigroup, Merrill Lynch and Morgan Stanley are all paying $75 million each over five years.
Skepticism
Some observers remain skeptical about whether small investors will really benefit from additional research. Kent Womack, an associate professor at Dartmouth's Tuck School of Business, said there was little to suggest independents would provide better research than analysts at investment banks.
The settlement has done a good job increasing disclosure, Womack said, but the research portion will create a short-term windfall for independent shops, lead firms to lay off analysts and ultimately reduce the amount of research for investors. The money might have been better spent on investor education, he said.
"If we had had enough education that suggested to investors that buying individual stocks was a bad trade and a bad idea and what you should be doing is diversifying your portfolio, and not trying to pick the next Microsoft, we'd all be better off," he said.