Controversies About Financing
Analyst recommendations on stocks owned by firms employing them may be seen as potentially biased. This may be less of an issue with analysts employed by firms that do not own the recommended stocks.
The research department sometimes doesn't have the ability to bring in enough money to be a self-sustaining research company. The research analysts department is therefore sometimes a unit of an investment, investment brokerage, or investment advisory firm.
Since 2002 there has been extra effort to overcome perceived conflicts of interest between the investment part of the firm and the public and client research part of the firm (see accounting scandals). For example, research firms are sometimes separated into two categories, brokerage and independent. Independent researchers are not part of an investment firm and so don't have the same incentive to issue overly favorable views on companies. But this might not be sufficient to avoid all conflicts of interest.
Debate still exists about the way sell-side analysts are paid. Usually brokerage fees pay for their research. But this creates a temptation for analysts to act as stock sellers and to lure investors into "overtrading."
Some consider that it would be sounder if investors had to pay financial research separately and directly to fully independent research firms.
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