The value of the invested savings and pensions of millions of people in the UK are dependant on asset managers.
In a damning report, the Financial Conduct Authority (FCA) has said there is weak price competition, leaving customers paying high charges.
An industry association said price transparency had been improving.
The FCA has studied the asset management system for a year, and has now published its interim report.
In a string of criticisms, it said that investors often paid high charges, there were examples of poor value for money in some funds, and that consultants could bring better results for pension savers.
"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," said Andrew Bailey, chief executive of the FCA.
"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."
He ruled out a price cap, which he argued would not encourage competition.
Some investors have been critical of the sector for years, owing to the complicated structure of fees that can include charges for performance and transactions.
There was criticism in the report of "actively-managed funds" when a fund manager is paid to research the market. The extra cost to investors of this service were, on average, "not justified by higher returns", it said.
The FCA is proposing an all-in fee among other measures to help investors decide which fund is the best for them.
It also wants a more standard set of information across the sector making costs and charges clear.
The potential benefits of UK pension funds pooling their assets to gain better returns should also be explored, the FCA said.
The Investment Association, the trade body that represents UK investment managers, said that it had already been improving the transparency of costs.
"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," said Chris Cummings, the association's chief executive.
"Over the coming weeks, we will engage closely with the FCA to understand its findings and the full implications of potential remedies."
The interim report now goes to consultation. The FCA said action could be announced next summer.
One of the City's most lucrative gravy trains is running out of steam.
Fund managers occupy a cosy world in which they have plenty of wiggle room on charges, make high profits and pick up tasty bonuses.
The FCA's solution is to have one easily-comparable charge and make value for money a priority. It might even ask the government to impose a statutory duty of care.
But the question which really stands out from this investigation is whether active fund management is really worth it. That's when managers pick the stocks they think will succeed.
The FCA found that investors in a passive fund which just tracks the market could earn a 44% higher return over 20 years, because of lower charges.
Most investors would forgive even a sizeable charge if they had something to show for it.
Investors should be quoted a single "all-in fee" so the amount taken in charges from their investment returns is clear, a regulator has said.