Found that adding the Property Setting ALLUSERS=[ALLUSERS] on the Install MSI From Installation custom action can resolve this error message.
Alternatives to nested installs:
Microsoft best practice recommendations include not using nested installations due to significant limitations such as upgrade and patching issues. Below are two different methods to use which install two .MSIs during one installation.
Use the Execute Program from Destination to call an .MSI from the User Interface script. User Interface script is run before the Windows Installer Engine starts up, so the .MSI will not be nested.
Note: If the .MSI will reside in the same folder as your main .MSI, then you can use [SourceDir] as the path to the .MSI (include the name of the .MSI in the path).
Note: Add double quotes around your paths if it fails to execute in the .EXE and CommandLine field.
You can also use an .EXE wrapper to a call both .MSIs.
Completing this process will install the first .MSI and then install the main .MSI. You can also choose to create your own wrapper using Wisescript Script that would launch the first .MSI then the second using the Execute Program action.