Stakeholder culture

If the report's recommendations are followed, the City will experience its biggest shake-up for at least a decade.

A new generation of "simple and comprehensible" products would be unveiled with 1% annual fees and no initial or surrender charges.

Mary Francis: Too much red tape

The idea was welcomed by consumer groups, and City organisations including the Financial Services Authority and the Association of British Insurers.

Sheila McKechnie at the Consumers' Association called it a "powerful" report, and said it had "correctly diagnosed the fundamental failings of the financial services industry".

"The review has tackled many of the problems facing consumers long-term," she said.

"The government will now face the challenge to ensure that consumers in the short term who are imprisoned by bad products and who have been mis-sold are able to seek redress," she added.

The ABI's director general, Mary Francis, said: "We particularly welcome [Mr Sandler's] support for simpler products and less red tape".

Low-cost concerns

But other figures condemned Mr Sandler's conclusions as naive.

"They have tried this already with stakeholder pensions and it didn't really work," said Paul Smee, director general of the Association of Independent Financial Advisers.

"People aren't rushing to buy stakeholders."

Mark Dampier, head of research at IFA firm Hargreaves Lansdown said: "It's ironic that he's launching a new range of products on top of a range that is already there."

Advisers 'compromised'

Mr Sandler said that savers had been left without "meaningful influence" on the financial services market, and forced to rely on advisers who themselves may be poorly researched.

"There is no such thing as a reassuringly expensive investment. The Stella Artois effect does not apply

Gordon Maw, director, Virgin Money

"Minimum standards of [advisers'] knowledge on investment are currently low," Mr Sandler warned.

The quality of advice may be further compromised by many advisers' reliance on commission from product providers.

The commission-based structure disadvantaged poorer Britons, among whom a reluctance to save was "particularly acute".

Commission - where advisers are paid on a percentage basis, "encourages advisers to concentrate their efforts on the more affluent consumers", said Mr Sandler.

He recommended that advisers be paid, like other consultants, by clients on a fee basis.

Poor are worst affected

Mr Sandler also questioned consumers' preference for actively managed funds - where fund managers aim to outperform the market - over so-called tracker products, which simply follow the market.

Research showed that, thanks to fees and "unsuccessful" active management, the average UK unit trust underperformed the market by 2.5% a year.

"Retail investors are incurring the additional costs of active management when there is little chance of their achieving higher returns to compensate for this," Tuesday's report said.

Mr Sandler's finding was backed by Gordon Maw, director at Virgin Money.

"There is no such thing as a reassuringly expensive investment," Mr Maw told BBC News Online.

"The Stella Artois effect does not apply."

Next step

The Treasury and the Financial Services Authority are due to begin weighing up the Sandler recommendations in September, with initial proposals on a simplified regime expected next year.

The document also comes two days ahead of the release of a review by former National Association of Pension Funds chief Alan Pickering, which is expected to call for a simplification of pension regulations in an effort to shore up final salary pension schemes.