Cooling in the markets has unnerved many fund managers, who seem unable to cope with the new atmosphere of uncertainty, a survey by analysts PricewaterhouseCoopers has revealed.

Amid "crueller than expected" conditions, too many products are flooding the market for too few clients, the researchers cautioned.

Rather than churning out new products, fund managers need to become more customer oriented, said Ms Marie O'Connor, a partner at PricewaterhouseCoopers funds group in Dublin.

"Retail investors are not looking for even more products. Instead, they are looking for simple savings solutions, targeted more specifically to their needs.

"With less than 20 per cent of households holding funds in most countries, the market still has large untapped potential.

"The leading investment managers of tomorrow will tap into this market by designing differentiated solutions and by doing their part to promote awareness and understanding of the industry as a whole."

Banks continue to dominate funds distribution in Europe and many had begun to adopt an "open architecture" approach, offering products such as multi-manager programmes, while providing clients with more choice.

Pressure on margins is fierce and cost control has become paramount throughout the business community, PricewaterhouseCoopers said. Fund managers should explore innovative ways of stripping overheads.

A balance must be struck between the exponential risk created by increasing the number of partners and the requirement to marshal expertise amid the increasing complexity of regulatory regimes throughout Europe, PricewaterhouseCoopers said.

Simply adding new products to portfolios was unlikely to steady the outlook ahead, said Ms O'Connor.