Panacea Adviser, a free online community for adviser firms, is calling for immediate action to overhaul the way in which the Financial Services Compensation Scheme (FSCS) is funded following yesterday's announcement of a £76m levy on investment intermediaries.
Derek Bradley, chief executive of Panacea Adviser, said the FSCS' current funding model is "unfair, unpredictable and creates a very real financial hazard to smaller adviser businesses".
He said it also places consumer confidence expectations and advisers' ability to pay "at loggerheads".
"The potential inability to pay ever increasing, often unexpected and unfair levies going forward will see many more firms put out of business into default," said Bradley.
"This post-RDR landscape will see many more firms being unable to meet the growing and unpredictable demands of the FSCS [as well as] to satisfy their own capital adequacy requirements.
"Inevitably this will create further consumer detriment for the very people it is meant to protect and leaving fewer firms to pay the ever-increased demands made by the FSCS."
Bradley wants the Association of Professional Financial Advisers (APFA) to move to cut off the flow of cash to the FSCS from advisers, diverting it instead to an escrow-type account for safe keeping until a "realistically" funded model is achieved.
However APFA policy director Chris Hannant dismissed the idea of advisers withholding fees to the FSCS as counterproductive.
"Withholding payments would just end up costing advisers more money through legal action as the FSCS would sue."
Hannant wants to see a product levy of about 0.1% on financial products and advice implemented in a VAT-style tax to pay for the compensation scheme.
APFA recommended this model to the Financial Services Authority (FSA) during its consultation on the funding of the FSCS last autumn, and Hannant said the regulator was "not opposed" to it as an idea.
