New Startup Idea

In December the New York Attorney General along with a bunch of government regulators announced a "global settlement" to fix some inherent conflicts in the investment banking business. One part of the settlement is:

An obligation to furnish independent research. For a five-year period, each of the brokerage firms will be required to contract with no less than three independent research firms that will provide research to the brokerage firm's customers. An independent consultant ("monitor") for each firm, with final authority to procure independent research from independent providers, will be chosen by regulators. This will ensure that individual investors get access to objective investment advice.

The press release for the settlement can be found on the New York Office of the Attorney General web site.

Here is the startup idea: I want to start a new independent research firm that writes very positive reports about the biggest clients of the biggest investment banks. If I need to, I'll also write negative reports about the clients of banks that don't buy my research. In aggregate it'll look like I'm fair and balanced.

Unfortunately, there are lots of independent research firms already doing this. Independence means nothing when the economic incentives automatically align the interests of bankers and analysts.

Too bad the NY AG missed an opportunity to do the right thing. As an investor, what I really want is transparency. I would much rather the regulators required analysts to disclose the financial links between them and the companies they cover. This is the only way for me to judge how independent the research might actually be. It's sad when it's easier to learn what goes in to a cereal box than what goes in to a research report.