Whether you love them or loathe them, social media influencers are now an established part of our digital spaces, and an increasingly integral part of marketing campaigns. The benefits of using them are considerable – they can directly access audiences in their millions, are known and trusted by their followers, and have significant cultural influence outside of a brand’s ‘traditional’ audience.
Dedicated financial services “finfluencers” are increasingly being used to advertise financial products and services, like cryptocurrencies and stock trades, to new – and often young – audiences. That said, regulators are clearly keeping an eye on this fast-emerging risk area – because the potential impacts on markets and consumers are considerable.
Finfluencers by the numbers
Social media influencers are beginning to have a notable impact in financial services marketing, especially among younger consumers (those born between 1997 and 2012, or ‘Gen-Z’) that might be unfamiliar with the potential risks of financial markets. According to research by the Chartered Financial Analyst (CFA) Institute:
- 37% of Gen-Z investors in the US, 30% in Canada, 38% in the UK, and 51% in China cite social media influencers as a major factor in their decision to start investing
- Investors under the age of 34 are the most likely group to say they trust social media as a source of investment information
We see similar figures from the Financial Conduct Authority (FCA)’s research into social media impact on the financial space:
- 58% of those under 40 who have invested in high-risk investment products say hype on social media and the news lies behind their investment decisions
- 62% of 18 – 29-year old’s follow social media influencers, and 74% say they trust their advice
- Nine in 10 young followers have been encouraged to change their financial behavior
Finfluencers hold significant sway over the habits of their followers, something that firms have been looking to leverage to reach new audiences. However, while firms are waking up to this new area of opportunity, regulators are already well aware of the risks – and acting on them.
FCAsa Amor
The FCA has recently announced court dates for a case against nine individuals accused of participating in promoting an unauthorized foreign exchange trading scheme using their social media channels. The individuals, including former contestants on reality television shows like Big Brother, Geordie Shore, and Love Island, have a combined social media audience of 4.5 million followers.
The case alleges that, between 19 May, 2018 and 13 April, 2021, defendants were paid to use their Instagram channels to provide advice on buying and selling contracts for difference (CFDs) when they were not authorized to do so. The FCA deems CFDs ‘high risk’ products, as 80% of customers lose money when investing in them, and has restricted how these products can be marketed and sold to retail customers.
Firms would do well to review the regulator’s revised social media guidelines to understand where the FCA stands on finfluencers. On the updated guidelines, Lucy Castledine, FCA Director, Consumer Investments, said:
“We’ve seen a growing number of ads falling short of the guidance we have in place to stop consumer harm … so we’re updating our guidance to clarify what we expect of firms when marketing financial products online. And for those touting products illegally, we will be taking action against you.”
Clearly, the unauthorized CFD promotion had the potential to cause sizeable consumer harm, and the FCA acted accordingly. Firms looking to employ finfluencers should also consider the FCA’s Consumer Duty, which requires all marketing promotions to “provide a balanced view of the benefits and risks, and clearly communicate information that will help consumers make effective, well‑informed decisions.”
FINRA vs. finfluencers
In March, 2024, the U.S. Financial Industry Regulatory Authority (FINRA) fined M1 Finance LLC $850,000 for social media posts made on its behalf by finfluencers that “were not fair or balanced, or contained exaggerated, unwarranted, promissory, or misleading claims.” This was a landmark ruling, as it was FINRA’s first disciplinary action focused on social media influencers.
Between January, 2020 and April, 2023, M1 finance paid for finfluencers to post promotional content that included a unique link to its website, enabling customers to open up a brokerage account. It provided finfluencers with a range of information and graphics to make posts “more effective”, with the campaign resulting in 39,400 new accounts being opened, involving around 1,700 influencers.
The content of the finfluencer’s posts were “not fair and balanced”, violating FINRA’s expected content standards in Rule 2210 and standards of “commercial honor” from Rule 2010. M1 Securities also failed to implement procedures for supervising finfluencer communications, further violating Rules 3110 and 4511.
According to Bill St. Louis, Executive Vice President and head of Enforcement at FINRA’s summary of the case, we will doubtless see similar actions from the regulator going forward:
“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.”
Sewing Discord
The Securities and Exchange Commission (SEC) has also acted against finfluencers that have breached compliance rules. Back in 2022, the commission charged eight individuals involved in a $100 million securities fraud scheme that involved using social media platforms Discord and X (then Twitter) to manipulate exchange-traded stocks.
Since 2020, the defendants promoted themselves as successful traders and cultivated hundreds of thousands of followers, encouraging those followers to purchase selected stocks they themselves had invested in. The SEC’s case summary states the defendants “used social media to amass a large following of novice investors and then took advantage of their followers by repeatedly feeding them a steady diet of misinformation,” resulting in fraudulent profits.
In February, 2024, the SEC fined Van Eck Associates $1.75 million for failing to disclose the involvement of a “well-known and controversial social media influencer” to promote the launch of its new Exchange Traded Fund (ETF). This resulted in the firm failing to meet disclosure requirements and “limited the [fund] board’s ability to consider the economic impact of the licensing arrangement and the involvement of a prominent social media influencer,” violating both the Investment Company Act and Investment Advisers Act.
Finfluencer marketing activity can also fall under the scope of the SEC’s Marketing Rule, which prevents firms from advertising “hypothetical performance” of products to mass audiences unless they have a clear grasp of that audience’s investment objectives. With finflunecers reaching audiences potentially in the millions, firms should ensure that when – and if – they advertise performance metrics they do so in line with the Marketing Rule.
Can finfluencer marketing be compliant?
It may seem that the odds are stacked against using finfluencer marketing compliantly, as they present risks across a wide range of areas, including fraud, supervision, disclosure, marketing compliance, and recordkeeping risks. However, firms looking to play the finfluencer game can take steps to mitigate and control these risks, including ensuring all finfluencer marketing social posts are captured and retained in a compliant archive, and can be automatically surveiled for signs of trouble.
The CFA’s research also includes suggested steps that firms – and regulators – can take to minimize the risks that finfluencers can present:
- Firms should provide finfluencers with compliance training covering the importance of adequate disclosures, review finfluencer content before and after it is posted to ensure the content has not changed, and keep record of all social media posts in which a finfluencer is used
- Regulators should record data on complaints and whistleblowing activities received regarding finfluencers, including the platforms involved (if not already doing so). This data should then be aggregated and publicly reported
- Regulators should also make and maintain contact with finfluencers to make them aware of the existing regulatory framework, in addition to providing greater clarity in regulations as pertaining to the legal status of new intermediaries such as finfluencers
Finfluencer marketing is here to stay, and regulators are clearly ready to act where it strays into non-compliance. Firms deciding whether the rewards outweigh the risks should be influenced by regulation, guidance, and learning from the mistakes of others.
