The power loss and permeability of soft magnetic composite (SMC) might be improved by surface modification and magnetic field orientation of flake particles. The oriented ZnO-modified flaky FeSiCr SMCs were produced under the magnetic field. The orienting mechanism of flake powder under a magnetic field produced by Helmholtz coils was investigated using torque model analysis. After surface modification, the permeability and power loss of ZnO-modified flaky FeSiCr SMCs could reach 63 and 421.29 kW/m3(at 50 mT, 100 kHz), respectively. The three-dimensional loss separation results demonstrate that spin rotation mechanism, defects, and dislocations of ZnO modification from theory and experiment may be responsible for the enhanced soft magnetic characteristics.