High-Profile Stock Analysts Losing Influence

KNOXVILLE – A University of Tennessee finance professor said high-profile Wall Street stock analysts don’t have as much clout now as they did in the past.

University of Tennessee finance professor Phillip Daves said officials with the Merrill Lynch investment firm recently struck a deal with the Attorney General of New York to change the way the company compensates its stock analysts.

Analysts such as Merrill Lynch’s Henry Blodget and Salomon Smith Barney’s Jack Grubman may be familiar to viewers of financial television programs, Daves said, but institutional investors on Wall Street don’t pay much attention to their advice.

“Even back in the early 1990’s, the market as a whole recognized that some high-profile analysts had conflicts of interest,” Daves said, “and would only accept their advice if it was later corroborated by other analysts.”

In the settlement, Merrill Lynch admitted no wrongdoing, but agreed to change the way its analysts are compensated, to avoid the appearance that they are touting stock that their firm is trying to sell.

Before full-disclosure regulations were implemented, Daves said, analysts received information marginally earlier than the rest of the market, filtered it and noisily disseminated it to the public. But Daves said that began to change when the government rewrote the rules for the financial services industry.

“It’s illegal now for firms to release information to analysts that they don’t simultaneously release to the public, so in my opinion the so-called superstar stock analysts serve no financial purpose whatsoever,” Daves said.