Client Bias Lingers, Ratings Sober

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Roughly 1,500 carried a neutral rating in March 2000, which in theory meant those stocks were worth holding. But in the twisted mentality of that era, neutral was often the not-so-secret code word for sell, as analysts were pressured by employers to avoid negative opinions on investment banking clients or even willing collaborators in the pitch for lucrative fees from mergers and initial public offerings of stock.

Perhaps more telling than a comparison with the market peak in 2000 is that the buy-sell-hold ratio has held fairly steady since late 2002.

It was then that Wall Street's biggest firms, chastened by charges from New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, agreed to sever all interaction between their research and banking operations. It was also right about then that the stock market hit bottom in the post-bubble plunge.

That stock ratings have not reverted to an exuberant state could be taken to suggest that Wall Street's contrition has had substance beyond the $1.4 billion it paid to make the scandal go away. Even as stocks rallied in 2003, and merger activity picked up in 2004 and 2005, the breakdown of analyst ratings has held somewhat steady.

But while a welcome dose of sobriety seems to persist in the overall scheme of stock research, individual investors should still be mindful of who they listen to for advice. The stock ratings at the major brokerages still demonstrate a pattern that's hard to justify despite efforts to prevent conflicts of interest.

At least there's more transparency to the process, and any investor with the patience to read their advisor's disclosures will be better armed in deciding whose research to follow.

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