Wall Street's Discovery of Ethics Is Too Little, Too Late
The amusing element of Merrill Lynch's decision Tuesday to prohibit its research analysts from owning shares in the companies they follow is the suggestion that this move will inject integrity into the research process. If that's not an admission that integrity doesn't exist now, what is? Merrill Lynch's move is little more than press-release chest thumping. It won't improve the quality of its research. It won't eliminate the conflicts of interest between investment banking and retail brokerage activities. And it won't make the unsuspecting individual investor trust analysts any more than they do now.
Worse for Merrill Lynch (MER) and any brokerage that decides to follow its lead is that now Merrill analysts will have to put up with the gripe against high-minded journalists who write about the investment world: If you don't have any skin in the game, if you aren't willing to put your money where your mouth is, why should I listen to you?
The answer is that there's only one reason to listen to anyone giving you investment advice: if they make money for you by telling you what to do or give you good ideas that help you make money. That Merrill is taking a step to require its analysts to behave more ethically than they were before is nice, but it won't really change what matters.
In essence, this is all background noise to the end-of-an-era drama of a system breaking down. The last 10 years were all about the democratization of the capital markets. Everyone got caught up in the fun, from the housewives in Carmela Soprano's upscale neighborhood and the Beardstown Ladies to my fishing guide in Alaska last month (he wasn't any luckier helping me catch a king salmon than he was in investing in the IPO of Internet advertising agency Avenue A (AVEA)) and brothers proud of being Foolish investors. Merrill Lynch, the big-name brokerage with the most significant collection of individual investors for clients, got caught up in the fun. It even jettisoned a research analyst who was a sourpuss on Amazon.com (AMZN) in favor of one who was sufficiently bullish.But the fun is over. And the evidence is that the institutions that were supposed to care about individual investors suddenly are covering their rear ends. The Securities and Exchange Commission publishes an otherwise fine
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