The collapsed stock price of Centro Properties perfectly illustrates the toxic nexus that exists between management teams and the analysts whose job it is, at least in theory, to objectively assess their strategies and decisions.

Centro was what is known as a “good client” in the investment banking world. Its aggressive debt-fuelled acquisition strategy meant fees were regular and plentiful. Why put them at risk with negative analyst coverage on the other side of the Chinese wall?

Analysts’ know who butters their bread. Their wages are a cost centre, not a profit centre. It’s the advisory and brokerage fees that ultimately pay a broking analyst’s salary and bonus. The incentives are clear, if not explicit.

Centro was one of the most obviously overpriced stocks of the year. Any analyst worth their salt should have picked it up. The fact that not one major broker did—none we’re aware of had a sell on it before last week’s trading halt—tells you all you need to know about their priorities. Their important clients are acquisitive deal-makers like Centro, not the retail investors that read their broking research.

Just to be on the safe side, though, company management teams often try to foster close relationships with analysts. From long lunches to company-sponsored international ‘site visits’, it’s easy for an analyst to develop a general sense of goodwill towards a company, deserved or not.

The flip side of this, at least for research houses that value and trade on genuine independence, is that management can be heavy handed and intimidatory when faced with research they don’t like. My firm, The Intelligent Investor, experienced this first hand after publishing a scathing report on Centro in June.

In response to our criticism of the group’s strategy, Philippa Kelly, Centro’s “General Manager – Institutional Funds Management” sent a menacing seven page letter of what she deemed “errors”. It was a classic PR ploy: attack as many minor, peripheral points as possible in an effort to make the central argument seem less credible. Obviously it failed.

Now the corporate ambulance chasers are on the case. Yesterday I took a call from a firm which is seeking to launch a class action against Centro. But if ever there was a case of caveat emptor, this was it. The numbers were there in black and white.

The fact is, we’ve all been here before. After the Enron collapse, there was much hand-wringing by the media, brokers and regulators. How was it that none of the major brokers picked it up? Why was it left to a few academics and Bethany McLean of Fortune to spot the fraud? Rules were changed, procedures were established and it was predicted that “sell side” brokers would rise to prominence.

It hasn’t happened and Centro’s recent experience proves why: the investment banking firms are about investment banking, not broking. The industry’s Chinese walls provide only theoretical separation. The crucial and pervasive human incentives are strong enough to undermine their effectiveness. Until this changes which, incidentally, would require a fundamental restructure of the industry, the reliability of the broking research from investment banks won’t change either. It’s all about the fees.