Keith Richards' Consumer Duty Alliance is calling on the government to reapportion some of the fines it collects from the industry into financial services, to bring costs down for advisers and fund consumer education.
The former chief executive of the Personal Finance Society, who now heads up the CDA, said fines were originally designed to be fed back to contribute towards the cost of the regulatory system.
Fines are currently being sent to the Treasury to be used towards general government expenditure on public services. This is a requirement by law and Richards said amounted to a "stealth tax".
Fines for 2022 amounted to some £216mn, while for 2023 so far the total is approximately £23mn.
Richards said this could be used to support advice firms amid ever-rising levies, and to fund some much-needed education initiatives, following the government's consultation on the advice guidance boundary.
A HM Treasury spokesperson said: "The revenue from these fines helps fund public services and redirecting the funds would have a negative impact."
Richards' comments come in the wake of the FCA's proposals to force firms to hold extra capital to cover any claims that may arise.
He said the new measures, though a "sensible thing to do", did not fully address the bad firms issue, which has seen the FSCS levy soar.
He told FT Adviser there was a difference between advisers who phoenix to rid themselves of their liabilities from reckless behaviour and firms that folded because their capital adequacy requirements did not meet the cost of an unexpected claim.
"I think, you know, all those sort of things are sensible, but really and truly ... the vast majority of firms it won't impact because the vast majority of small firms that have got a relatively small client bank don't get claims against them.
"What it will do for the good, genuine firms is it will protect their interests and the interests of their clients."
He explained: "As painful as it might sound, the risk is if you end up with an unexpected compensation that isn't fully covered by your PI, for example ,it could have a catastrophic effect for the firm.
"That doesn't make the firm bad. In fact, it might even have been as a result of past advisers who no longer work in the sector.
"So it's hardly fair to call that firm a polluter when the incumbents have nothing to do with the poor advice that was given 10 years ago.
"So it will make it slightly more difficult for people to deliberately churn because I suspect what the regulator might be after, it's already promised it's looking much closer at any firm that collapses and whether or not the directors are fit and proper to hold permissions again, so it's certainly now higher on the agenda not to allow phoenixing."
