Analyst recommendations. (Wall Street West).

Though little known to investors, there's an industry group for securities analysts -- the Charlottesville, Va.-based Association for Investment Management, which has been advocating regulations that would limit the conflicts faced by brokerage analysts, also known as "sell side" analysts.

The brokerage industry has been accused of having analysts who always put out "buy" recommendations to draw in the profitable investment banking business - and that business would be lost if a brokerage put out a "sell" signal on a company.

James Lyon, managing principle for equity investments for Oakwood Capital Management in Century City, is president of the Los Angeles Society of Financial Analysts (AIMR's local chapter) and a strong advocate for industry reforms being contemplated by Congress. Lyon forcefully endorses recommendations made last week by AIMR to alter the sell-side environment.

In a nutshell, the 57,000-member AIMR called for analysts to be paid based upon their performance as stock pickers -- not on how much investment banking business they help drum up.

For Lyon, it's a big issue. if the investing public loses faith in stocks, the country will be the loser, he said. "The public's faith in Wall Street may be harmed by brokerage analysts recommendations, as well as the financial reporting issues raised by the Enron case," said Lyon. "When the integrity of the capital markets is called into question, this can only hurt capital formation ... which is critical to job formation."

Fewer investors means more-expensive capital and less growth, Lyon said. "You don't want to fool with that."

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [e-mail].