Proposed new rules for governing Wall Street analyst conflicts of interest are commendable but do not go far enough, says the Association for Investment Management and Research.

In particular, AIMR argued in a letter to the SEC that research analysts’ compensation “should be dependent on, and directly attributable to, the quality of (their) research and the success of (their) recommendations over time. We recommend that firms be required to implement performance evaluation and compensation schemes that will create strong incentives for independence and objectivity in research.”

Although the rule proposals prohibit paying the analyst based on his or her work on a specific investment banking assignment, “We do not believe that this requirement will have much effect on the status quo,” says the letter signed by AIMR’s chairman, Philippe Sarasin, and its president and CEO, Thomas Bowman. “Most employers of research analysts no longer engage in this practice, yet analysts at these firms still experience considerable increase in salary and bonuses from their involvement in investment banking activities of the firm.”

According to AIMR, independence and objectivity will not be achieved unless firms implement the proper performance-evaluation and compensation incentives to create an environment that supports them.

The letter from Bowman also said that analysts should not be prohibited from holding the securities of the companies they follow. “Rather, we believe that the interests of research analysts and investing clients would be better aligned if analysts held these securities with strictly enforced rules that prevent front-running client trades and prevent analysts from trading against their recommendations.”