Understanding disclosure statements in investment research reports


Disclosure statements are often found at the end of investment research reports, often in tiny print that’s easy to miss. It’s easy to overlook this information. However, a disclosure statement can contain crucial information that can help guide your investment decisions.

The Securities and Exchange Commission (SEC) requires all research reports to contain a disclosure statement. If you’re looking at a research report that doesn’t contain a disclosure statement, it’s best to walk away.

If the report does contain a disclosure statement, the language may be so dense that it appears meaningless. It’s important to look at some of the common phrases used in disclosure statements to help you better decide how to invest.

Say what?

Lawyers are responsible for writing most disclosure statements. This means you can expect to encounter a lot of legalese. Here are some of the typical statements found in a disclaimer and what they mean in plain English:

  • Actual results may differ from our forecasts: In other words, we may be right, but we could be wrong. Investment analysts often base their forecasts on a company’s past performance and anticipated future revenue. However, recent history has shown that the market is anything but stable. This statement is designed to provide legal protection should economic volatility impact an analyst’s predictions.
  • This report is based on information we believe to be correct: Investment analysts generally can’t audit a company’s books. Their forecasts are based on public, corporate financial statements. Hopefully, the company is being truthful. However, unethical businesses may fudge their numbers.
  • This report is for informational purposes only: Investment research reports aren’t tailored to a specific audience. Because analysts don’t know the financial situation of the person reviewing the report, they can’t provide specific advice on whether to invest in a company.

Disclosure statements might contain little more than boilerplate language designed to shield firms from liability. However, statements should also disclose any conflicts of interest. Pay close attention if there’s any relationship between the subject of the report and the brokerage firm. You should follow-up with any questions or concerns you may have if such a relationship exists.

Disclaimers and disclosure statements are not an absolute shield against fraudulent behavior. You should explore your legal options if a report failed to disclose material information that resulted in making an ill-advised investment.