Colonial Mutual, which acts for members of the National Association of Schoolmasters Union of Women Teachers, is accused of breaking industry rules by allowing unsupervised trainees to sell products including "top-up" pensions contributions, life assurance policies and savings plans.
The company is also accused of failing to spot that vital documents on customers' spending patterns were falsified.
The Personal Investment Authority was sent a 30-page dossier by the Freedom to Care group which campaigns for higher ethical standards and more accountability in companies and other organisations.
The concerns raised by former Colonial employees were aired by the BBC Radio 4 Face the Facts programme last week. The inquiry, which will probably be carried out by a major firm of accountants, will also investigate the role of the PIA itself over accusations that it failed to deal with complaints.
About a third of the union's members are thought to have taken out policies of some kind with Colonial Mutual which pays the union commission of up to Pounds 500,000 a year.