When the Retail Distribution Review (RDR) comes into force at the end of next year, Independent Financial Advisers will need to uphold a much higher standard of ‘independence’ when providing advice to each client.

Under current rules, the term ‘independent financial adviser’ is reserved for financial advisers who select products from the whole of the market and offer their clients a fee option.

The new definition of independent is “advice which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market.”

According to the FSA, it is designed to reflect the idea of a genuinely independent adviser being free from any restrictions that could impact on their ability to recommend whatever is best for the customer.

Where an IFA uses model portfolios, distributor-influenced funds or outsourced discretionary fund management, they need to ensure it meets these new higher standards of independence.

In practice, this will mean considering these options alongside other investment options and ensuring each individual client receives suitable advice based on this comprehensive analysis of the relevant market.

In our opinion, all independent financial advisers should already be meeting these new higher standards of independence.

Our own use of model portfolios forms one option we consider for each individual client, as part of the investment advice process will always follow to ensure suitability.

The funds we select for inclusion in our model portfolios are never related to the remuneration we will receive from the fund manager, as this is always agreed at a client level before we provide advice.

One of the most important issues raised in the Personal Finance Society paper relates to adviser incentives and potential conflicts of interest.

Transparency has certainly become a hot topic in retail financial services. The recent move by Fidelity to disclose the rebates they receive from fund managers has raised questions of other fund supermarkets, including execution-only platforms which provide no advice, about the level of ‘kickbacks’ they each receive.

No independent financial adviser should ever receive of any undisclosed remuneration from a fund manager.

There is a real danger, particularly with distributor-influenced funds, that investors will be advised to put their money into something more suitable for the adviser (in terms of the commercial arrangements) than it is for meeting their personal investment goals.

We welcome the current trend towards greater transparency in the sector, and hope it will not be long before all financial advisers are forced to disclose in detail the remuneration they receive from various sources.

Photo credit: Flickr/Everyspoon

Investors risk grabbing the falling knife, or investing in a falling stock market, too early and therefore grabbing the blade rather than the handle.

If you time it right of course, the results can be extremely rewarding.

We all like to grab a bargain, and investing in an asset at the bottom of its price range can feel a lot like you have landed the bargain of the century.

Unfortunately it is nearly impossible to accurately time the market.

Catching a falling knife (in investment terms) is trying to time the market. The trouble with this strategy is, you are more likely to invest at the wrong time than you are to invest at the best time.

Potentially a bigger risk associated with trying to time the market is that you miss out on some of the best days of market returns.

In their research looking at a number of bear markets, Fidelity found that missing out on only a few of the best days can have a dramatic impact on the returns you get from your investment portfolio.

Fidelity found that £1,000 invested in the FTSE All-Share in October 2000 would have grown to £1,330 by October 2010.

Had an investor missed ten of the best days in this ten year period, the return would have been £720.

The return would have fallen to £475 if the investor had missed the 20 best days in this time period.

Trying to catch a falling knife is a high risk investment strategy. It is usually always best to invest and remain invested, rather than risk investing too soon or not soon enough.

Photo credit: Flickr/cogdogblog

The past decade has been good to investors with exposure to BRIC markets.

With some fears that these economies and markets are starting to overheat, investors are understandably looking for new emerging market investment opportunities.

The MINT countries are Mexico, Indonesia, Nigeria and Turkey.

In a briefing note to investment advisers this week, Fidelity took a closer look at each of these four countries to see what they have to offer from an investment perspective.

Mexico has a very high economic exposure to the United States, which is both a positive and negative attribute for investors. Nearly 80% of their exports go across the border to the US and the country receives a large amount of US investment.

Indonesia is the most similar of the four MINT countries to the BRIC nations. It has a larger population than Brazil or Russia and an economic goal to become a top 10 global economy by 2025.

Nigeria features a gap between perception and reality, with images of poverty and corruption masking some of the opportunities for exciting investment opportunities.

Turkey has seen a robust economic recovery since the global financial crisis. It grew by an estimated 8.1% last year and has a banking system which is in relatively good condition.

Whilst there are good economic and investment cases for each of these countries, investing in MINT economies represents a higher than acceptable level of investment risk for most investors.

Any investment in Emerging Market nations is a risky proposition.

In addition to the usual risks associated with equity investing, investors must be prepared to accept currency risk, liquidity risk and political risk.

Whilst BRIC nations are quickly becoming established economies, the four MINT countries are truly emerging markets and must be treated with caution.

Now that Fidelity has coined the term MINT, the launch of a fund investing in these countries is probably not too far behind.

Rather than jumping on the latest investment bandwagon, investors should only invest in the latest fad with a purpose; the launch of a cleverly named fund is never a good enough reason on its own.

Many windfall ISAs were created in 1997 when investors received shares in return for their membership of mutual building societies.

Fidelity is not the first group to close their windfall ISA accounts. Many demutualisation shares have not been particularly successful, with some even going bust in the recent financial crisis.

Investors with a Fidelity windfall ISA account have to decide what to do with their money by 1st October 2010. They can transfer out in cash to another ISA manager or invest in funds with Fidelity FundsNetwork.

Those who do not make a decision by 1st October will see the value of their ISA accounts invested in the Fidelity MoneyBuilder UK Index fund. This fund aims to achieve long term capital growth by closely matching the performance of the FTSE Actuaries All Share Index. It is a low cost tracker fund, with an Annual Management Charge (AMC) of 0.1% and a Total Expense Ratio (TER) of 0.3%.

Unfortunately, investors do not have the option to retain their demutualisation shares by transferring their ISA account holdings in-specie to another ISA manager.

The 34,000 people with a Fidelity windfall ISA account should use this as an opportunity to review their overall investment strategy.

Trevor joined Fidelity in January 2006 as Asset Allocation Director.

In addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.

In this video, he describes the investment market outlook for 2010 along with his views on price inflation and which asset classes could look most attractive next year.

For more outlooks from Fidelity fund managers, please visit www.fidelity.co.uk/outlook.

Longer fund manager tenure does not necessarily result in better returns, but it should mean greater stability and a more consistent approach to managing money within the fund.

Investment funds with managers who have only been in charge for a couple of years, or those funds run by managers with a habit of moving around, are less attractive.

Yesterday was a busy day for fund manager movements.

At Fidelity, Tim McCarron announced he was leaving the firm early next year to take a break from fund management. He has been with Fidelity for sixteen years and is manager of the £3.5bn Fidelity European fund.

McCarron will be replaced at the helm of Fidelity European by Sam Morse, who currently manages the Fidelity Moneybuilder Growth fund. Replacing Morse on 1st January will be James Griffin. He has been managing UK Equities for eleven years at Fidelity, demonstrating consistent outperformance of his benchmark index.

Also announced yesterday was Michael Gifford handing over management of the £37m Old Mutual Equity Income and £25m Extra Income funds to Stephen Message with immediate effect.

Message joined Old Mutual from US private wealth manager Bessemer Trust late last year and had already been working alongside Gifford on the Old Mutual UK Select Equity fund. Unlike the Fidelity movements, this appears to have happened much faster without much of a planned transition.

The departure and replacement of a fund manager is not reason in itself to ditch your holding in a fund and buy an alternative. However, in all of the cases described above, investors will want to keep a close eye on not just performance but also changes to management style in the coming months.

Bolton, arguably one of the most successful investors of his generation, will be relocating to Hong Kong to manage a new China fund for Fidelity. The new fund will invest in China and China-related opportunities. It is likely to be launched at the end of the first quarter next year.

Anthony Bolton has an awesome reputation.

As manager of the Fidelity Special Situations Fund for 28 years, he achieved an annualised return of 19.5% (compared to 13.5% for the FTSE All-Share Index). This means he turned £1,000 invested in 1979 into £148,200 by the end of 2007.

He picked up a reputation as a ‘quiet assassin’ after flexing his muscles as a major shareholder in Carlton and Granada, resulting in the removal of flamboyant chairman Michael Green.

In launching this new fund, we believe that Fidelity could face two challenges.

Firstly, whilst there is undoubtedly a strong growth story relating to the Chinese economy, actually getting access to this by investing in Chinese companies has been difficult. By extending the remit of this fund to include China-related opportunities, Bolton will not be restricted to investing solely in Chinese companies.

Secondly, there is a danger that investors will follow Bolton blindly into any new fund, regardless of their tolerance to investment risk. UK Special Situations is a risky asset class but Chinese equities are even higher risk. Fidelity might consider placing a higher than average minimum investment requirement on this fund for retail investors for this very reason.