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The City watchdog has warned a lack of price competition means many investors are paying high charges in the UK's £7tn asset management industry.

In its interim report - a year after the market study began - the Financial Conduct Authority (FCA) recommended a shake-up to bolster transparency on costs through the implementation of a single fee and hold asset managers to account.

The report covers personal and institutional investment activity.

More than three-quarters of UK households with occupational or personal pensions use the industry's services.

The British market is the second-largest in the world.

The FCA was essentially examining whether customers receive good value for money, as the low interest rate environment since the financial crisis has pushed more people to seek better returns on their savings.

It said the industry had, as a whole, enjoyed "sustained, high profits over a number of years with significant price clustering" despite a large number of companies operating in the marketplace.

The watchdog identified limited price competition for actively managed funds. It said investors were often having to pay high charges as a result, with the costs not justified, on average, by higher returns.

The study also found conflicts of interest in the investment consulting business and the FCA said it was consulting on a possible referral to the Competition and Markets Authority for a full investigation.

FCA chief executive, Andrew Bailey, said: "In today's world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs.

"To achieve this, we need to ensure that competition in asset management works effectively to minimise the cost of investment.

"We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns.

"We want asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers' best interests. The remedies that we are proposing today aim to achieve these outcomes."

Chris Cummings, chief executive of the Investment Association industry body, said: "The investment management industry is committed to serving the needs of the UK's savers and investors and so we support the FCA's objectives to ensure that competition in the industry works to the benefit of its customers, whether individuals, families or institutions.

"Over the coming weeks, we will engage closely with the FCA to understand its findings and the full implications of potential remedies.
 
"We are pleased that the FCA has recognised the industry is already leading on improving cost transparency for our clients by developing a new Disclosure Code, and the investment industry notes and welcomes the regulator's strong backing for the project."