Finfluencers in Crosshairs of Latest FINRA Lawsuit

Finfluencers may be trending on your social media feeds, but the latest viral videos are also getting flagged by industry watchdogs.

Digital influencers are leaning into their social media know-how to breathe new life into wealth management prospecting campaigns. Financial firms now spend significant portions of their marketing budgets on hiring the next wave of financial influencers: Digital-savvy content creators generally have better engagement with young investors, and are often seen as more relatable than traditional financial advisers, according to data from the CFA Institute. But they’re also catching the ire of government watchdogs, which are trying to determine when online advertisements and paid-for reviews cross a murky line into becoming regulated investment advice.

Not So Fast

The Financial Industry Regulatory Authority dinged online brokerage TradeZero $250,000 in June for paying influencers to unfairly promote the firm in social media channels, according to recent filings. The regulator said one influencer told viewers the company was for “people who want to trade and make billies,” and not for “grandmas and grandpas who trade, like, one stock.” The same influencer allegedly said he was up several thousand dollars without “even trying.”

The ploy worked. Customers opened about 575 new accounts using referral links provided by the influencers, including one whose platform had millions of viewers, FINRA said. These links allegedly pushed new clients to a webpage that allowed them to directly open and fund TradeZero brokerage accounts.

We’re Hiring

Financial firms are now in the market for popular finfluencers. Almost four in 10 Gen Z investors in the United States cited finfluencers as a major factor in their investment decisions, according to the data. The report also found that only 20% of finfluencer investment recommendations included any form of disclosure, such as professional qualifications or potential conflicts of interest.

Nevertheless, the global influencer market has doubled since 2019, and continues to evolve:

• Influencer marketing has grown into a $21.1 billion industry, an increase of 29% from $16.4 billion in the previous year, according to recent research. 
• Despite people losing trust in influencers, the market size has continued to grow, according to the study. 

TikTokers Beware

It may be effective, but the influencer realm is also littered with questionable advice and the potential for fraud. FINRA and other watchdogs will need to get a handle on just how impactful these marketing campaigns are becoming to make sure they are staying within regulatory guidelines.

“Social media is designed to bring users from different places together through shared content,” according to the CFA Institute study. “Although this confluence can help foster social connectivity and the transmission of information, it also is a key challenge to effective regulation.”