Research Enters a Glasnost Stage

Given the way the stock market has performed the past three years, it's understandable if many investors don't want to look too closely at their brokerage statements.

But by year's end, many brokerage statements should make for interesting reading, no matter which direction the stock market heads. That's because this week's $1.4 billion settlement with 10 big Wall Street firms will make it easier than ever for investors to find out what others are saying about the stocks their brokers have urged them to buy.

One of the settlement's major reforms is a requirement that each Wall Street firm provide customers with alternative stock research produced by independent shops that don't do investment banking. And just in case an investor doesn't read those other reports, the settlement also requires the firms to tell its customers what those independent shops think on every single brokerage statement or trade confirmation slip they mail out.

Here's how it works.

Let's say you're a Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) customer and your broker calls and recommends buying shares in Cisco Systems(CSCO Quote - Cramer on CSCO - Stock Picks), claiming the firm's analyst believes the networking company's stock is undervalued. The broker mentions that Merrill also has some independent research reports on Cisco that you might want to read. But you tell the broker you don't need to read those other reports and tell him to just go ahead and buy some shares because you trust his judgment.

A few days later, Merrill sends you a trade confirmation slip in the mail that reports the number of shares of Cisco purchased and the price paid. Here's what's new: The confirmation slip indicates not only Merrill's rating on Cisco but the ratings of the other independent research firms as well.

It might be sobering for an investor to find out in our hypothetical case that a Merrill analyst rates shares of Cisco a buy, but analysts at other firms rate the stock a hold or even a sell.

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