The Personal Finance Society (PFS) wants to replace the current compensation system with a protection and education levy raised by central government.
Keith Richards, chief executive of the Personal Finance Society, said the latest proposals to reform the Financial Services Compensation Scheme (FSCS) amounted to little more than "reshuffling of the deckchairs" and broader-based solutions were needed.
The FCA published its finalised rules for FSCS funding reform in May stating it will require product providers to contribute about 25 per cent of the compensation costs which fall on advisers in a bid to limit the impact from a growing number of claims about pension transfers and assets held within self-invested personal pensions.
It will also merge the life and pensions and investment intermediation funding classes, and move pure protection intermediation to the general insurance distribution class.
But the regulator does not want to stop there.
It is also looking for ways to force advisers' professional indemnity insurers to cover some of the cost of compensation by allowing the FSCS to claim against a defaulted firm's insurance.
But Mr Richards called for a savings and investment monetary protection and education (SIMPEL) levy, collected centrally by government.
The underlying idea is similar to the product-based levy the PFS had called for in the past, and which was ruled out by the FCA, in that a certain cost is levied on the products sold, for instance seven basis points, to cover the approximately £700m a year regulatory expenditure.
But advisers would also contribute to the fund, which would pool the risk and in turn dispose of the current need for professional indemnity insurance, he said.
Mr Richards said: "Well intentioned as it is, the FSCS was designed at a different point in time and has built up an unknown level of legacy liability over many years.
"It is increasingly proving unfit for purpose and the growing concern over defined benefit transfers, plus a hardening professional indemnity insurance market, will compound the level of liability placed upon it, which will result in poor outcomes for consumers and the market as a whole."
The FCA's proposals for PII, some advisers claim, will push insurers out of the market while others will put their premiums up.
There have already been signs of a hardening professional indemnity insurance market for advisers holding defined benefit (DB) transfer qualifications.
Phil Billingham's O&M Pension Advice was forced to close down this month after it was unable to find professional indemnity cover at "commercially acceptable" terms, mainly to do with high excesses.
Mr Billingham felt the market had been unable to shrug off recent experiences from the British Steel fiasco, where multiple firms were implicated in supposedly giving bad transfer advice to workers and are now facing claims.
Mr Richards said: "On the premise that most in the market accept the need to contribute to regulation and protection, our proposal would enable the necessary funding to be achieved without any accusations of bias, unfairness, or punitive prioritisation that makes one sector feel it is carrying the burden for all the others.