There were fears among City-based investment analysts yesterday that Merrill Lynch’s proposed reforms to the research industry would lead to an increase in red tape that was unwarranted in the Square Mile. There was speculation that Mr Spitzer’s success might prompt European investors to gather under one umbrella.However, some City analysts yesterday warned that there was no need to apply draconian reform to the research industry in London and Europe. The chief reform proposed by Merrill is to sever any link between analysts’ salaries and the investment banking business, although analysts will also have to say whether they have been influenced by either the company or the investment banking department.”In London, an analyst’s pay is determined by their sector, their ranking and what the next bank is going to pay to poach them. In any case, analysts in the Square Mile do a better job than those in the US They are more diligent and thorough,” one analyst said.

“There’s already too much bureaucracy surrounding research and this will only produce more.”While it is New York-based analysts such as Mary Meeker and Henry Blodget who have come under most scrutiny after the collapse of technology stocks, there were also some analysts in London who were equally bullish on the New Economy. They could yet face lawsuits filed by private investors.The Financial Services Authority is conducting its own investigation into investment recommendations during the tech share boom.. It was a humbled Merrill Lynch that stepped forward yesterday and conceded that its analysts had allowed themselves at the peak of the hi-tech boom to skew their stock recommendations, putting the interests of the firm’s investment banking division ahead of those of ordinary investors. In addition, it pledged to adopt a range of reforms to answer the concern that analysts have been expected to boost investment banking flow.Most importantly, the bank will separate how it determines analysts’ pay from investment banking concerns and will henceforth pay analysts only for their performance as it pertains to providing a service to investor clients.It will create a research committee that will review all new stock recommendations and rating changes, checking for objectivity. The committee will be run by private client and institutional sales representatives and be headed by one person who will paid based on how Merrill’s research picks actually perform.A compliance officer, or ombudsman, will also be appointed to ensure the agreement sealed with Mr Spitzer is honoured. The officer will serve for one year and Mr Spitzer will have a final say on who that person will be.The bank will also install a system to monitor electronic communications between the analyst and investment banking arms of the bank.

Merrill will also make fuller disclosures about its investment banking relationships with companies it covers.. Michael Dobson, the new chief executive of Schroders, yesterday removed a handful of UK jobs in the fund management group’s private clients unit in his latest moves to turn the struggling company around. She joined Schroders with Mr Dobson in November when it bought Beaumont Capital Management, the boutique asset management group they founded.The bank employs 380 people in the UK, Switzerland and Germany, although the latest round of redundancies is restricted to the UK. Among the departing staff are Rupert Caldecott, the head of the international business, and David Rowe, managing director of UK business.”We are committed to growing the private bank However, it is appropriate to adjust our costbase in the UK Clients will not be affected,” said a Schroders spokesman. “There is a new management team at Schroders and it is looking at all business areas.”Mr Bussey joined Schroders 13 months ago from HSBC, where he was head of its private banking business in Europe and the Middle East.Schroders is not the first financial services group to scale back its offering to high net worth customers. Last week Merrill Lynch pulled the plug on its $1bn wealth management joint venture with HSBC, prompting its UK rival to take full control.