A City watchdog has proposed a series of radical reforms to the way financial products are sold in a bid to give people on low incomes better access to advice.

The Financial Services Authority is suggesting the current system of selling products through independent financial advisors (IFAs) who earn commission, or tied advisers who sell products for just one firm, should be scrapped.

Instead, it is proposing that IFAs should charge set fees in exchange for advice with commission from sales returned to customers.

The regulator is proposing that tied advisors should be allowed to sell savings and pension products from a range of different firms so consumers have more choice.

It is also suggesting the introduction of a two-tiered system of IFAs, with the lower tier advising on a limited range of basic products for a cheaper fee to ensure that people on low incomes have access to advice.

The FSA said the cost of advice should be separated from overall product charges to improve transparency.

But IFAs responded angrily to the proposals. Some said it would cause chaos in the way products are sold, while others said people would not be prepared to pay for advice.

Lord Hunt, chairman of the Association of Independent Financial Advisors, said if the move went through, it would result in "industry chaos and confusion for consumers".