Recession approaching - time to deprive people of financial advice

The government's reckless spending cuts, pushing the UK to the brink of a double-dip recession, certainly don't help matters. And developments in recent days could exacerbate the impact of the inevitable downturn by depriving all but an affluent minority of access to financial advice.

One is the decision by Barclays to stop offering financial advice in its branches. On its own it's bad news for Barclays customers, but the repercussions could be serious on a greater scale if other banks decide to follow suit.

Such misgivings seem counter-intuitive, given the bank's recent record. It has been fined no less than four times in the last 18 months, the most notable being last week's 7.7 million penalty for mis-selling investment funds to elderly customers.

This supports the argument that the financial planning arms run by high street banks are little more than sales operations. More than 12,000 investors suffered losses as a result of the investment sales tactics employed by Barclays, but the reality is that the number of people flogged unsuitable investments by poorly trained staff at UK banks is probably in the millions.

That's why I complained last week about the failure of the Financial Services Authority (FSA) to prevent mis-selling, lamenting a retrospective approach that just happens to produce millions of pounds in fines. Its job is to protect consumers, but it acts as a compensation scheme. Its proposals this week to clamp down on risky products are tantamount to confession.

But regardless of the quality of the advice it offers, the Barclays decision spells trouble, particularly if others follow. Yes, I did just accuse high street banks of having, at best, a flimsy notion of the advice concept. However new rules coming into force in 2012, under which independent financial advisers (IFAs) will become better qualified and expect to charge customers more for their services, will reduce the number of people taking independent advice.

More will instead turn to banks and building societies for advice, raising fears of an escalation of the mis-selling that is already rife (although some institutions, particularly mutuals, are more responsible than others in this regard.

The only way to avoid that outcome is to tackle the sales target culture of UK banks. The FSA's proposals to police financial products by banning or restricting the sale of the riskiest ones and introducing health warnings are a step in the right direction. But the root of the problem remains with the sale. As long as bank pay is linked to sales targets, people will be sold products that they don't need or that are unsuitable.Encouragingly, last year's Future of Banking Commission report, called for banks to link executive pay to complaints and to reward staff on the basis of service rather than sales. I'm of the view that you should only buy an investment product from a bank if you know what you're doing and understand what you're being sold - the only way to get truly independent advice is to pay for an IFA. But the mass market will increasingly depend on banks and building societies.

As it stands, the expected rise in demand for advice from those outlets is - like the economy in the hands of an ideologically driven government with no regard for the human consequences - a car crash in slow motion. There's time for evasive action but the appetite for it seems worryingly lacking.