“The biggest firms on Wall Street are nearing an agreement with regulators for fixing the problems with stock research. But some champions of independent investment advice are criticizing the plan and the process that produced it,” writes Patrick McGeehan in today’s New York Times.

“Ten of the biggest brokerage firms and investment banks had until today to respond to a proposal laid out to them last week by Eliot Spitzer, the attorney general of New York, and Stephen M. Cutler, director of enforcement for the Securities and Exchange Commission.”

“Under the plan, the firms would pay a total of as much as $1 billion over five years to subsidize stock research by companies that, unlike the brokerage houses, do not also operate investment banks. The Wall Street firms, under pressure to reduce the conflict of interest between their research and investment banking operations, would have to make this independent research available to their customers.”

“Eager to reach a settlement that will end investigations by Mr. Spitzer and securities regulators, the firms were in general agreement yesterday on the broad outlines of the plan, people close to the negotiations said. It would limit — but not prohibit — analysts’ cooperation with their investment banking colleagues and would allow the banks to keep recommending the stocks of their corporate clients, these people said.”

“Executives of some investment banks think that they should not be lumped together with firms like Merrill Lynch and Credit Suisse First Boston, whose internal documents have been cited as evidence that analysts were influenced by investment bankers. Even those firms, including Morgan Stanley and Goldman Sachs, are likely to sign on to a general agreement that would cover all of their main competitors, people close to the negotiations said. Once they consent, regulators will work out the details, like how much each firm will pay and how the recipients will be chosen.”

“But some executives in the industry questioned whether the plan would really protect investors from built-in conflicts. They said that as long as analysts could draw paychecks from firms that profit by underwriting stocks, their recommendations should not be presented as objective.”

“Others criticized the regulators for failing to seek input from outside the core of Wall Street.”