PALM DESERT, Calif. -- The selling of investments to individual investors and their purchases of them are mired in dysfunction, according to the former director of conduct risk and sector leader for asset management of the Financial Services Authority in the United Kingdom.

“It isn’t a real market,’’ Dan Waters said at the outset of a discussion on regulatory reform around the world, at the 2011 Investment Company Institute Mutual Funds and Investment Management Conference here. “It just doesn’t work very well.”

Consumers of investments “don’t understand their own needs,’’ he said, and sellers are “not good at matching (their products) to needs.”

That results in a “significant mismatch” of what investors should be holding as opposed to what they do hold.

His analogy: If an appliance manufacturer sold its customers dishwashers that broke down 25 percent of the time, the maker would be out of business.

Waters said investment firms in the United Kingdom went overboard in selling “very expensive” personal pension plans with defined benefits and had to compensate investors for billions of dollars in payments into such plans.

Similar “mismatches” occurred in the mortgage markets, with buyers buying and sellers selling the wrong type of home loans to wide swaths of the market.

“The market is broken,’’ he said. “It does not work.”

Waters left the FSA at the end of 2010. The United Kingdom is replacing the FSA with a new regulatory structure for banking, insurance and capital markets.

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