Collective investments are popular

The proposed new regime could see more choice, and investors being kept better informed as to how their investments are performing.

But in return, some expert investors may have to sign away their rights to claim that they have been mis-sold if things go wrong.

Collective investments which pool investor money in order to take stakes in stock market-listed companies and other investment classes are a popular means by which people save for school fees and their own retirement.

EU directive

As a rule of thumb, collective investments are considered safer than investing in the shares of a single company as risk is spread.

However, following three years of stock market falls, many unit trust and OEIC investors have suffered serious losses.

And the EU directive has set out minimum standards that UK collective investments have to meet in order to be allowed to be sold to investors from other member states.

In response the FSA has announced that the current eight distinct categories of retail collective investment schemes including unit trust and OEICS will be rationalised into two broad types.

One group of investments will be deemed "UCITS" type, with an EU requirement on the spread and quality of assets in the fund.

Our current 'one size fits all' approach to fund regulation does not take sufficient account of the fact that investors have differing degrees of experience and expertise Michael Folger FSA

The remaining collective investments will be deemed to be "non-UCITS" type, which will be able to invest in a wider range of assets, including property, but will have to be marketed to UK based investors only.

Up-front disclosure

In the area of charges, performance fees will be allowed for OEIC investments, bringing the UK in line with most other EU member states.

In addition, there will be a requirement for up-front disclosure to investors of examples of how such fees would operate.

A new category of high-risk highly complex investment will become available under the FSA proposals.

They will be aimed at institutional and expert private investors who will have to sign a disclaimer at the time of investment making it clear that they know what they are doing.

As a result, they waive their rights to take the investment company to the financial ombudsman in the event of financial loss.

Different sizes

However, the FSA assured BBC News Online that firms managing these complex investment will be forbidden from marketing them direct to the general public.

"Our current 'one size fits all' approach to fund regulation does not take sufficient account of the fact that investors have differing degrees of experience and expertise.

Our proposals recognise changing consumer needs and market developments," said Michael Folger, director of conduct of business standards for the FSA.

The consultation period on FSA proposals will end on the 31 October. The FSA plans to implement the changes by early 2004.