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Regulators crack down on misleading investing advice spread through social media influencers. Brokerage app M1 Finance faces an $850,000 fine from FINRA, the government-backed nonprofit organization overseen by the SEC that regulates public brokerage firms. The fine stems from an extended investigation into M1 Finance’s social media campaigns between 2020 and 2023 where the company hired around 1,700 influencers.
This enforcement action marks the first time FINRA has levied penalties against a company for its social media influencer strategy, the agency has announced.
“As investors increasingly use social media to inform their financial decisions, FINRA’s rules on communicating with the public are especially critical,” states Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA.
“FINRA will continue to consider whether firms are using practices and maintaining supervisory systems that are reasonably designed to address the risks related to social media influencer programs.”
The investigation found that M1 Finance provided influencers with graphics and a “welcome guide” to create sponsored content advertising the company’s brokerage accounts. Influencers received a flat fee for each new customer signup through their referral links. This influencer marketing strategy proved effective – between January 2020 and April 2023, M1 Finance added nearly 40,000 new accounts with the help of around 1,700 influencers.
In September 2020, TikToker Gil Olivera posted a clip in which representatives of different financial companies argue over which offers the best terms and conditions to its customers, promoting M1 Finance’s low fees and app.
However, FINRA determined that M1 Finance failed to review or approve the content posted by paid influencers, violating industry rules. Some influencers also made factually incorrect statements, such as claiming customers could repay margin loans “at any given time” with no set period. In reality, “investors who use margin are not entitled to any extension of time to meet the firm’s margin requirements,” the agency points out.
A 2023 Forbes study revealed nearly 80% of millennials and Gen Zers have received financial guidance from social media, with #FinTok garnering almost 5 billion views on TikTok alone. Yet over half of financial advice on TikTok may be misleading, according to recent research from Fast Company.
M1 Finance settled with FINRA without admitting or denying the charges. The company did not respond to requests for comment.
Through this enforcement action against M1 Finance’s influencer marketing practices, FINRA aims to establish a precedent for proper oversight as the largely unregulated realm of social media emerges as an influential financial advice platform.
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Courtesy : https://www.netinfluencer.com/finra-fined-m1-finance/