CONSUMER rights campaigners and independent financial advisers have responded angrily to the City regulator's planned overhaul of the way advice is given to investors.

The Financial Services Authority has condemned the current system of selling savings and investments as a "major market distortion" which limits people's choice.

FSA officials are proposing to ease regulations and introduce new "multi-tie" rules which it hopes will give people greater access to financial advice.

But the Consumers' Association warns that the changes will give the major institutions a stranglehold on the market, forcing out Independent Financial Advisers across Dorset and Hampshire.

Under the current "polarisation" system, financial products can only be sold by:

IFAs who advise on all products and companies and earn

their commissions from selling;

Tied advisers who represent just one bank, building society or insurer and can sell only its products.

The FSA is concerned that around 80 per cent of people buy savings and pension products from tied advisers, who do not offer as wide a range of products as IFAs.

It also said that people were put off going to IFAs because they thought the advice they'd receive would not be impartial if the adviser were earning commission.

There was also evidence of "some product bias and product provider bias" from IFAs, said the FSA.

So the FSA is proposing to allow tied advisers to sell products from a range of companies to offer consumers more choice, while IFAs would have to charge a fixed fee for advice, with any money made through commission going to consumers.

But Consumers' Association director Sheila McKechnie said: "We do not believe these proposals will create a level playing field in the market. Instead of boosting independent advice, these reforms are more likely to squeeze IFAs out of the market. The introduction of multi-ties will significantly boost the power of product providers and high street banks, giving them a stranglehold on distribution."

Association of Independent Financial Advisers chairman Lord Hunt said multi-ties would result in "industry chaos and confusion for consumers".

But FSA chairman Howard Davies said: "This is a significant liberalisation package to enhance consumer choice by breaking the shackles that polarisation puts on competition and innovation."