Cheshire-based Greystone Financial Services must pay compensation to the customer, referred to as Mrs Y.
Her first complaint was rejected by the FOS but an adjudicator disagreed and ruled in her favour.
The ombudsman has now upheld the complaint, which centred on advice issued in 2008 to invest £50,000 in the ARM Assured Income Plan.
Greystone, a chartered Financial Planning business, did not accept the adjudicator's findings, saying that the plan was suitable for Mrs Y and was within a reasonable proportion of her overall investment portfolio.
It said that there was no causal link between its advice and Mrs Y's losses and suggested that Mrs Y's complaint be redirected towards Catalyst - the primary distributor of the plan.

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Greystone believed consumers could direct claims to the Financial Services Compensation Scheme because Catalyst has been declared in default.
Mrs Y, 48 at the time of investment, insisted her complaint was against Greystone, rather than Catalyst.
She had sought advice about investing inheritance she received in 2008 and documents showed she was only willing to take a low level of risk.
The ARM plan was expected to give her a return of 7.5% gross per annum - twice the deposit rate of 3.5% the funds had been earning.
The ombudsman said this was "indicative to me of a higher risk approach".
Greystone pointed to the appendix to its report which gave more detailed information about the risks of investing in ARM but the ombudsman, Raj Varadarajan, said "given the substantial risks involved I consider that these should have been highlighted in the main suitability report."
He said: "The main report did not alert Mrs Y to ARM as being a Special Purpose Vehicle and unregulated.
"Mrs Y should not have to search for such important information.
"In any case, Mrs Y was receiving advice from the business, so she was entitled to rely on that advice and on the adviser's presentation of the suitability of the fund for her needs.
"Therefore I do not agree that giving product literature absolved the adviser from his responsibility to provide suitable advice to the consumer."
Greystone provided an expert's report in respect of ARM, traded life policy investments and their risks, which disagreed with the FCA guidance, saying it was no more than 'low to medium' risk and that an IFA would not be expected to conclude otherwise at the time of the advice.

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The ombudsman said he considered this but stressed that the ARM brochure warned that participation in the plan could "involve substantial risks".
He said: "Greystone was, or reasonably ought to have been, aware of this when it
recommended the product to Mrs Y.
"The investment was a Special Purpose Vehicle, was comparable to other non
mainstream pooled investments such as Unregulated Collective Investment Schemes and should have been treated with a similar level of care and caution by the adviser.
"The ARM fund itself was subject to a higher level of risk and volatility. The fund was based offshore and not subject to UK regulation. Nor did it have the benefit of an investor's protection fund, namely the FSCS.
"There were a number of risks associated with this investment.
"In addition, the ARM plan constituted nearly 25% of Mrs Y's investible assets. "This not only further increased the risk but also I consider it to be too large a proportion of higher risk investment for someone with a 'cautious' risk attitude.
"Overall, I consider that the investment was above the level of risk Mrs Y was prepared to take. I am satisfied that the investment was mis-sold to Mrs Y by the
business."
Greystone must pay Mrs Y £200 for distress and it has been given a formula for compensation to abide by, comparing the performance of Mrs Y's investment with a benchmark set out by the FOS, as shown below.