The SEC has issued an investor alert urging investors “not to rely solely on analyst recommendations when deciding to buy, hold, or sell stock. Instead, the SEC is recommending that investors “consult multiple sources of information while considering their own investment goals and tolerance for risk.”

The alert explains the potentially compromising relationships between analysts and the investment banking and brokerage firms that employ them. In particular, the alert notes that some analysts work for firms that underwrite, or even own the securities of the companies that analysts cover. In other cases, analysts themselves might own stocks in the companies they cover, either directly, or indirectly through employee stock-purchase pools in which they and their colleagues participate.

The alert urges investors to also study a company’s financial filings and read objective sources of information before making investment decisions. The alert also provides tips to help investors find out whether an analyst or the analyst’s firm has a financial interest in a company’s securities.

Acting SEC chairman Laura Unger says, “Financial analysts have been the focus of intense public scrutiny in recent months, and I am hopeful the industry will eliminate the conflicts of interest that threaten the fairness and objectivity of analyst recommendations. Our first priority, however, is making sure individual investors are aware of the practices that have called analyst credibility into question. This investor alert should be required reading for anyone considering an investment decision based on an analyst recommendation.”