Australia's stockbrokers and research analysts have a new code of ethics to guide them in their daily dealings with retail customers.

Industry bodies last week announced a code of conduct entitled "Best Practice Guidelines for Research Integrity" aimed at dealing with the perceived conflict of interest between a company's research analysts and its corporate advisers.

The 10 guidelines (see below) also deal with other conflict-of-interest issues, including those where stockbrokers put their own interests above those of their clients.

But not everyone is convinced the guidelines, which are arbitrary rather than mandatory, will make much difference.

"It is a step in the right direction," says Peter Morgan, head of equities at the fund manager Perpetual. "But the industry should be encouraged to make it mandatory."

Mike Willis, president of the Securities Institute, one of the industry proponents of the guidelines, says: "The reality is that there is always the potential for a conflict of interest. No-one says these guidelines will stop that from happening.

"But what it does say is that there is enough concern around among market participants and regulators about these issues for the industry to need to address it.

"We have to encourage the industry to take the high ground and not go for the lowest common denominator."

But retail investors may feel they have already seen the "low ground". For some, the review and imposition of a set of industry ethics may be a little too late.

Those caught in the technology sector boom and bust, or the collapse of the insurance company HIH and telecommunications firm One.Tel, may still be wondering why there were few "sell" recommendations from research analysts before the demise of those companies.

One explanation is that analysts have come under increasing pressure from corporate advisers not to write negative reports on companies they research.

The conflict between analysts and corporate advisers comes when research analysts recommend shares based less on the company's merits than on hopes of winning underwriting or other fee-generating corporate advisory business for their firm.

This became a big issue in the United States after last year's tech wreck. Six months ago the industry announced self-regulatory guidelines, aimed at restoring investor confidence in markets and research analysts.

Other local conflict-of-interest issues include brokers making recommendations to clients but acting in a contrary manner (for instance, telling clients to buy shares in a certain company while they are selling those shares) or failing to fully disclose their own interest in a company to clients.

The guidelines also recommend the establishment of "Chinese walls" between advisory and broking businesses (already required by law); restricted share ownership by analysts; and the distribution of research reports to companies for fact-checking only. Investment recommendations would be removed from reports.

"The guidelines are very useful in terms of reminding people about what are a very complex set of issues," says Malcolm Rodgers, the Australian Securities and Investments Commission's acting executive director, policy and markets regulation.

"They aim to ensure that what advisers hold out as independent professional advice is just that. If people adhere to the guidelines, then there is a fair chance that that is what we will get."

And the Australian Stock Exchange (ASX) national companies counsel, Catherine Officer, says: "The guidelines support the underlying aim of our regulatory framework and that's all about equity of access to information, both in reality and perception.

"The very good thing about this is that all industry participants have come together to debate the issue and they are taking responsibility for the issues."

The industry acted before the Government or regulator stepped in and imposed "action which might not be appropriate", says Doug Clark, policy executive with the Securities and Derivatives Industry Association (SDIA). The SDIA is the stockbroking industry's association, with 70 broker-firm members ranging from small two-man operations to the big international firms. It is a supporter of the guidelines.

"The guidelines have been brought in to emphasise market integrity and client interests are paramount to what we do," Clark says. "We have tried to keep the guidelines at a fairly high level, but we have also gone into a fair bit of detail to ensure they work."

Officer says: "These are not just motherhood statements but guidelines which can be used."

Craig Drummond, JB Were's head of corporate finance and a long-time industry participant, says the guidelines are basically commonsense. "The issue for us is that we have been in the business for 160 years and we want to be here for another 160 years," he says.

"We are genuinely after repeat client business and a lot of value for us is in the retail side of what we do. We can't afford to show a genuine conflict. We might make mistakes but, overall, it is a matter of trying to be fair. You have to take the high ground."

Nevertheless, ASIC's Rodgers says the responsibility for investing remains with the investor. He says investors must make sure analysts' reports and market research is kept in perspective.

"Look at this as part of the picture, but not the whole picture," he says. "The reports should help you do your due diligence but not do it for you. Understand the work the analysts do and its limitations."

Best Practice Guidelines for Research Integrity

• Put the interests of investors first.
• Establish separate and distinct reporting structures for corporate advisers andresearch analysts.
• Have Chinese walls to prevent inappropriate dissemination of information.
• Fully disclose any economic interest.
• Restricted trading in shares covered bythe analyst.
• Remuneration should not be directly linkedto revenue received from corporate work.
• Investment recommendations should be unambiguous, consistent and transparent.
• Research should be issued in a timely manner.
• Written statement of firm's policies and procedures for managing conflict of interest.
• Monitoring compliance of firm's policiesand procedures.

• Australian Stock Exchange (ASX)
• Australian Shareholders' Association (ASA)
• Australian Securities and Investments Commission (ASIC)
• Institute of Chartered Accountants inAustralia (ICAA)
• Australian Institute of Company Directors (AICD)
• Chartered Secretaries of Australia (CSA)