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Enrollment in standards-based equity
research is an important measure of a public
company’s commitment to transparency and
Good Governance.
Three out of every
four investors are “most influenced” by an
analyst report, while nearly nine out of ten
believe that “legitimate fee-based research
is objective and useful.”
More and more companies that are pledged to
Good Governance and shareholder transparency
provide their shareholders with access to
professional, credible, third-party analyst
coverage from standards-based independent
research providers. Beginning with the Wall
Street research settlement -- and steadily
gaining momentum as transparency-related
issues have continued to arise -- investment
banks have dropped research coverage on
hundreds and hundreds of public companies.
As a result, many of those companies are
stepping-up to directly provide their
shareholders and the investing public
at-large with a conflict-lessened
replacement, creating a significant paradigm
shift.
In 2003, the Charter Member-Providers of the
FIRST Research Consortium joined together to
promulgate a now historically important
document: the “Standards
of Practice for Research Providers,”
to serve as an ethical bond between
companies, their shareholders, and their
potential shareholders.
The Financial Independent Research
Standards Task ("FIRST Research") Consortium,
which includes Investrend and all
Consortium Member-Providers, is a
collaborative of the world's leading
independent fee-based equity research firms.
The FIRST Research Consortium was created
for three purposes:
1) To review and advocate excellence in
research standards and ethics;
2) To expose the issuance of reports by
non-credentialed individuals and entities
using terms such as "coverage", "reports",
"recommendations", "research" and "analysts"
or "analysis", as well as those that do not
contain sufficient disclosures.
3) To work together to enable brokerages,
investment banks, principled hedge funds and
other professional financial entities to
offer their clients and the public the best
available equity valuations and ratings.
By offering "FIRST Research" to individual
investors, investment banks will add value
to their brokerage services while fulfilling
the terms of their settlements with federal
and state securities regulators. The
settlement requires the investment banks to
provide third-party research to their
clients.
None of the members of the FIRST Research
Consortium offer investment banking,
investor relations or other promotional
services to companies under coverage.
Since every company now can have coverage,
if you are invested in a company that does
not, it is a legitimate question to ask
yourself and the company, “Why not?”
Investors should always exercise their own
due diligence. That due diligence should begin
with asking the company for access to its
research. Then, make certain the research is
from a standards-based
provider that:
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Is not conflicted as an owner or trader of
the company’s stock. |
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Employs and identifies qualified analysts. |
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Makes its research available to all classes
of investors in a timely fashion, or
discloses any prior distributions. |
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Provides no investor relations, public
relations or promotion to companies under
coverage. |
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Does not issue ratings or targets as
recommendations or stock price predictors,
or in the absence of a full, publicly
accessible report. |
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Publishes its ethics and standards detailing
how it maintains objectivity and
independence from the companies it covers. |
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Provides full disclosure as to the
compensation it has received, the source of
that compensation, and the compensation is
not exorbitant. |
Standards of
Independent Research
Companies and individuals engaging fee-based
Independent Research Providers are
encouraged to determine if the Provider is a
member of the non-profit FIRST Research
Consortium or has adopted these Standards of
Independent Research.
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Adherence to
“Standards and Ethics” of Association for Investment
Management and Research (http://www.aimr.org). |
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Full disclosure of
financial considerations, including, if third-party,
relation of payer to the issuer if any. |
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Qualification of
analysts in CFA program or equivalent. |
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Analysts and principals
of research department do not own, trade equities
under coverage. |
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Customers and clients
are deemed to be shareholders and investors, not a
company or payer. |
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Ratings and Targets not
issued as recommendations or stock price predictors. |
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Ratings, targets not
issued in absence of a full, publicly-accessible
report. |
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Payment of analysts in
advance, or if salaried, analyst income not
dependent on outcome of reports. |
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Only a qualified analyst
may decide what
to publish, when to publish. Independent
Research Provider is obligated to distribute
professional analyst’s report when analyst
publishes. |
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Research may not be
under control of investment banking department or
executive. |
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Provider may not provide
promotion, investor relations or similar services to
companies under coverage. |
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Provider agrees to
review by Financial Independent Research Standards
Task Force Consortium, and that the Consortium may,
at its sole determination, suspend, terminate or
expel Provider in the event the provider is found to
be in violation of any of the Standards.
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FIRST Research Member-Providers are
Specialists in Equity Analysis
A premium is placed on accuracy of valuation
rather than stock price predictors. Members
seek to develop a model and determine a
forward looking market valuation of each
company under coverage. By calculating the
expected or potential dilution, the analyst
can determine a reasonable per-share
valuation. This model is then used in
establishing a "rating," not a
"recommendation." This insures that the
report, subsequent updates and research
notes follow corporate milestones, of which
earnings, assets, management and other
aspects are a part, to provide the investor
with an important aspect of his or her own
available knowledge and intelligence in
making an informed investment decision. |
