The word "Investorside" captures the essence of the message the Association wants to convey - that there is investment research available today in the marketplace that is on the side of the investor -- financially aligned with investor interests. If an investor can easily recognize, find and use Investorside research, then the marketplace will produce more of it in the future. We wanted a phrase that would distinguish truly investor-oriented research from what is known in investment lingo as "sell-side research" - what most investors think of as those free reports you get from your stockbrokers. Those reports are free because they are essentially "company-side" marketing brochures underwritten and produced by the very firms who have brought those companies to public offering with the objective of selling the company's shares to the public.

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Independent research makes up a very small portion of the current supply of investment research. It will be a long-term process to nurture and grow the demand for independent research so that more firms will produce it and investors will have a larger pool to choose from. We also need to inform investors how their investment assets actually are unwittingly supporting investment banking conflicts, and educate the public about the availability and value of paying for unbiased research.

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The founders of the Association saw the investment banking conflict as the most severe conflict that needs to be addressed, but were also well aware of the conflicts inherent in company consulting. However, investment banking remains the most acute conflict in investment research, and it is a huge mission to take on in and of itself. To be effective, it is essential that Investorside must have a singular focus.

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It's our estimate. There is no hard data, which is a problem we urge the government to correct. You can't fix a problem if you can't measure and track progress. The Precursor Group released a survey in July 2001 showing that 95% of the 82 firms ranked by The Wall Street Journal as the "Best Stock Pickers on the Street", and 100% of Institutional Investor's 2000 top investment research firms, have line of business research conflicts. (See Testimony Summary of Scott Cleland, CEO of the Precursor Group®, Before the Senate Commerce Committee, December 18, 2001). The Association membership knows from experience that investment banking research dominates the market and encourages investors, the government, and the media to try and produce a more formal and official market share assessment.

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According to the NASD, there are more than 84 million Americans invested in the U.S. equities markets today. Because most are investing via 401(k) funds, many do not have the time, tools or knowledge to search out unbiased research. The Investorside website will allow these consumers to easily locate research resources which are financially aligned with their interest. Also, the Association's efforts to encourage the government to promote more transparency in research practices will help individual investors.

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Investorside does not evaluate the content of the research its members produce, nor the results that research may generate for investors. Just as Investorside will provide a market-based solution to conflicted investment research, so too will the competitive marketplace quickly weed out any poor Investorside research. Because there is no "hidden" investment banking business to subsidize Investorside research, the quality must be high to justify investors paying its' full costs.

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There currently is not an easy way to do this. That's a big part of the problem. The SEC requires a great deal of disclosure from investment companies (such as Form N-SAR) and from investment advisors (Form ADV) that is publicly available. The Dept. of Labor also requires detailed reporting from investment funds under ERISA, the law covering 401(k) accounts. However, there is currently no practical way to break out how research is paid for from this information. The Investorside Research Association believes there is a great need for these agencies to require additional disclosure as part of their regulatory mission, to help investors identify the source of investment research used to manage their assets, and how it is paid for. More transparency and accountability to investors are common sense goals government should strive for.

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Applicants must attest that:

1. they are not in the business of providing investment banking or company consulting services;
2. that they are primarily paid by a client base of investors, not by companies who are the subject of the applicant's research; and
3. that they are in good standing with all relevant regulatory/governmental authorities.

In addition, the Membership Committee reviews the provider's research; marketing materials; and website for conflicts, paying particular attention to the applicant's research disclaimer. Applicants must be re-certified every three years.

The Association uses trademark laws and anti-fraud, misrepresentation, and truth in advertising as the ultimate enforcement mechanism. A two-pronged approach ensures that the Investorside Research seal carries real weight. The first line of defense is a mechanism whereby any member found to have misrepresented their lack of conflicts is subject to expulsion from the Association and forfeiture of dues and use of the Investorside Research Mark. The second and most important line of defense is a third-party enforcement mechanism vis a vis the government. If a Certified Provider is found to have used the Investorside trademark to misrepresent themselves as free of investment banking, they would be potentially liable for civil and criminal penalties under Federal and State laws covering fraud, fair representation and truth in advertising.

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The Association believes it's more productive to promote a systemic competitive solution, rather than to try and patch up a structural problem that is very hard to fix with regulation.

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1. Encourage independent research providers to get certified as Investorside Research Providers.
2. Encourage investors to ask their research provider if they are certified by the Association.
3. Encourage investor-oriented websites to have a weblink to www.investorside.org so that investors can more easily find a range of investment research providers that are financially aligned with their interests.
4. Become an associate member of the Investorside Research Association.

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The primary category is Certified Provider Membership, for companies who provide investment research that is free of investment banking conflicts. These members are authorized to use the "Certified Provider" seal on their research. Annual dues are $1000 per year for Certified Provider members. There is also an Associate Membership available for supporters and consumers of Investorside Research, with annual dues of $200. Founding members pay $7500 per year in dues.

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