"Those regulations are mostly irrelevant and unnecessary to the provision of pure research," Cleland contends. He runs his own Washington-based research business called The Precursor Group. Cleland's suggestion is that there should be research-only broker-dealers that would be exempted from many of the regs of other broker-dealers.

Regulators enforce such rules, he adds, because they usually don't understand the independent research firm. Even their definition of what constitutes independent research is slightly different from Investorside's.

The SEC, as part of the global settlement, defines independent research as simply "having no association with investment banking activities." Investorside's standard appears to be more stringent. It requires would-be members to stipulate that "they are not in the business of providing investment banking services; they are primarily paid by a client base of investors, not issuers of securities who are the subject of research; and they have no regulatory problems."

SEC officials said they had no comment on the complaints of Investorside members. The global settlement also requires that the independent advisor, seeking third-party research services, must take into consideration "whether and to what extent the independent research provider is engaged in activities or has a business that may conflict with the preparation and publication of the independent research."

Investorside generally agrees with that requirement, but also stipulates that independent research must be "primarily paid by a client base of investors, not by companies who are the subject of the applicant's research." Further, there is disagreement between the SEC and Investorside over the role of soft dollars.

The SEC generally has been trying to discourage the practice. It has hinted that it wants to narrow the safe harbor by which soft dollars are used. The soft dollar practice originates in the famous 1975 Section 28(e) of the securities code.

However, Investorside has been a fierce proponent of any narrowing of Section 28(e), a possible move now under review. Some members of Congress, with the support of John Bogle, the founder of the Vanguard Group, have called for the reduction or the elimination of the soft dollars. Investorside, in letters to the SEC, has warned that reducing or eliminating soft dollars through the repeal of Section 28(e) would destroy some of the nascent independents.

That would "defund the independent research industry almost completely, and perversely grant a de-facto government preference for conflicted, company subsidized, investment banking research," declares a letter sent by Investorside officials to the SEC. "Just talk of eliminating the primary source of independent research has had the unintended destructive and chilling effect on the use of and investment in independent research," the letter warned.

So why the misunderstanding, even when regulators are now seeking to nurture an independent research industry? It is because independent research remains a little-understood niche business, Cleland says. And that's even though these independents are supposedly going to become the solution to the problems of biased research and the resulting scandals of the past few years. These independents are not yet a huge factor. They are now only generating about $500 million in annual revenues, Investorside estimates.

Still, they have become a useful service for some advisors.