The Financial Ombudsman Service (FOS) has ruled in favour of five clients who invested almost £2.6m via their IFA 20Twenty Independent in a film scheme.
The five clients were advised to invest in the Crossover Film Partnerships, promoted by Crossover Capital.
However Rebus Investment Solutions, which acted on behalf of the clients, argued 20Twenty Independent misrepresented the scheme by failing to make the investors sufficiently aware of the high level of risk inherent in it.
The FOS agreed, and labelled the advice "unsuitable".
The case hinged on whether the investors should be held liable for full recourse loans that came as part of the investment.
According to Rebus 20Twenty Independent categorically stated the loans would never be an issue, as they were apparently guaranteed.
But as a result of the investment, the clients faced demands for the repayment of loan capital and interest.
The scheme qualified for tax relief, but the FOS concluded that the investment was so risky, that investors should have been made fully aware, that it could lead to a "total loss of possibly more than three times their initial contribution".
Moreover, there was no reference made to the affordability of the gearing within the scheme, according to Rebus.
Ombudsman Philip Roberts found 20Twenty gave Mr R (and others) unsuitable advice when advising them to invest in the scheme and that it misrepresented the scheme.
"I am satisfied that the future potential liabilities of the scheme were not suitable for, or properly explained to Mr R, who would not have signed up to the scheme in my view, if he had realised the true nature of the losses to which it could expose him," Roberts said.
Martin Taylor, head of client relations at Rebus, said: "It's often wrongly assumed that the primary risk of any unregulated collective investment scheme (UCIS) is whether it will be successful in being awarded tax relief and what is often overlooked is the fact that the majority of UCIS products are highly-leveraged, with many of these risky investments structured using full recourse loans.
"The structure of these products is so complex that many people simply do not know what they are buying into."
Taylor said one of the clients in question was advised that putting money in this scheme was safer than putting it into his mortgage.
Another was advised that this would be an ideal vehicle for school fees planning.
FOS can only enforce an award of £100,000 maximum, despite each individual facing much larger losses as a result of mis-selling.
Rebus said now that the FOS has recommended that the loan repayment should be included in a settlement, it is looking into recovering the remaining amount through the courts.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress