AIMR Wants Analysts to Report Risks with Ratings

The Association of Investment Management and Research (AIMR) is calling for a new uniform reporting system that will help analysts focus more attention on risk assessments and less on buy/sell ratings.

Misdirected Criticism

Analysts have been criticized in recent months for perceived conflicts of interest and for failing to predict the demise of dot-com and telecommunications companies. But many feel the criticism is misdirected for reasons cited in AIMR's response to rules proposed by the Securities & Exchange Commission(SEC), New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD). Key reasons:

  • The pressures on research analysts to be biased are not all internal to their employers. Pressures also come from companies that may retaliate against analysts they view as negative or uncooperative.
  • Simple "buy," "hold" or "sell" ratings are insufficient for making investment decisions. Yet that is often all that is communicated to the general public, with the result that the ratings overshadow the research.


To address these problems, AIMR makes a number of suggestions including the following:

  1. Analysts should develop rating systems with three elements: a recommendation, a risk characteristic and an associated time horizon. This will help average investors better guage the suitability of the investment for their own circumstances and constraints.

  2. If research analysts give media interviews and make other public appearances, their employers should be required to provide the relevant research reports to those audiences for free or a nominal fee. This way investors will also see the full research, not just the rating.

  3. Research analysts and their employers should be required to issue a final report when they discontinue coverage of a company and explain their reasons for discontinuing. This will address the temptation to quietly discontinue coverage, rather than issue a "sell" rating on a company.

AIMR is a 57,000-member organization of financial analysts, portfolio managers, investment advisors and other investment professionals in 112 countries. It was founded in 1990 from the merger of the Financial Analysts Federation (FAF) and the Institute of Chartered Financial Analysts (ICFA), the organization that originated the Chartered Financial Analyst (CFA) designation.

-Rosemary Schlank

You may like these other stories...

A proposal issued by the Governmental Accounting Standards Board (GASB) last week explains how fair value measurement should be defined for state and local government financial reporting.The exposure draft, Fair Value...
By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.