SAN FRANCISCO (CNN/Money) - Things are getting mighty surreal down on Wall Street these days. With headlines suggesting that Securities and Exchange Commission head Harvey Pitt wants to "probe himself," it's hard to keep a straight face -- and a straight sense of what exactly is going on.

Blink your eyes and suddenly Citigroup (C: up $0.50 to $38.15, Research, Estimates) creates an independent research unit called Smith Barney, a move seen by most as a way to diffuse the conflict-of-interest investigation against the firm by New York attorney general Eliot Spitzer.

Citigroup's decision to split Salomon Smith Barney's investment banking operations from research -- while an early volley in the ongoing war to clean up research on Wall Street -- certainly isn't the last maneuver we'll see by a major company striving to catch a little bit of that magic independence dust.

"It's Halloween season on Wall Street," says Kei Kianpoor, CEO of Investars, a company that monitors research analyst performance. "And the most popular costume is an independent."

Though almost everyone agrees that Wall Street research needs a radical overhaul, opinions vary widely on how that overhaul should take place, who will pay for it, and what, exactly, it will provide for individual investors.

Here's what's on the table so far: Spitzer's office and the SEC are proposing the creation of an "independent research entity," funded by settlement payments from the dozen or so Wall Street firms currently under investigation.

The entity would receive approximately $10 million to $20 million each year from each firm for as long as five years. It would employ no analysts, but would instead act as a middleman, soliciting requests for research from brokerages. The SEC will mandate that all brokers give investors access to second- and third-party research.

Say, for example, you tell your Merrill Lynch (MER: up $1.38 to $39.76, Research, Estimates) broker that you want to invest in company X. Your broker will provide you with Merrill's research and contact the independent entity to collect salient research from other houses, which she will then present to you as well.

Currently, obtaining independent research is costly and time-consuming for individual investors. This proposal would make it part of the broker-client relationship and eliminate the legwork for the investor.

Sounds like a boon for individual investors, a way for Wall Street to escape its tainted image, and a revenue windfall for independent research houses, right? Not exactly.

"It's only a partial solution," says Pat Dorsey, director of stock research at Morningstar. "It's like they're saying, 'We'll still sell you poison, but we'll give you an antidote too.'"

"I don't see how this means the individual is going to have access to good research," says Chuck Hill, director of research at Thomson First Call. "We don't know what entities are going to be in this group of independents."

Many independent institutional research houses have lucrative contracts with institutional investors, which pay handsomely for exclusive access to a firm's research. What's to motivate these research firms to drop such contracts in exchange for a relatively short-term deal to get their reports to the public? Especially since in many cases their contracts with the institutional investors demand exclusivity? "These independents don't want to participate in a market to distribute their research to everyone," Hill says.

Clearly something is rotten in New Amsterdam, and something needs to be done to get honest, untainted research into the hands of individual investors, who have become an enormous force on Wall Street in the last six years.

Ironically, it is the rise of the individual investor that in part has brought the problem to the fore. In the past, research was funded mainly through brokers' commissions: Brokers gave research divisions a percentage of their commissions in exchange for research.

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But brokers' commissions have plummeted in the last dozen years -- thanks in part to Internet trading sites such as E-trade (ET: up $0.19 to $4.86, Research, Estimates) -- and supporting research through brokerage commissions alone has become infeasible. The Spitzer/SEC proposals fail to address this root issue; instead, they create a stopgap measure of uncertain efficacy.

Whether this independent entity will get quality information into investors' hands will be known only after we see exactly what kinds of research are being offered. Niggling questions remain: What if I, as an investor, have a question about some of the third-party research my Morgan Stanley (MWD: up $1.71 to $42.10, Research, Estimates) broker has provided me? Who is responsible for answering my question: Morgan Stanley, the Spitzer/SEC entity, or the research firm itself?

"Who knows how it will work out? It's possible that this could fall apart," says Daren Dopp, a Spitzer spokesman. "But in the end, this will provide excellent sources of information that will help consumers." Sounds nice, but until this entity opens shop and we can kick the tires, I'm not investing my confidence in it.

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