FINRA, as part of its targeted exam of member firms’ social media practices for gaining new customers, recently announced an $850,000 fine against M1 Finance LLC (“M1 Finance”) stemming from promotional social media posts made by influencers the firm hired to expand its customer base. Unfortunately for M1 Finance, FINRA determined that prior to hiring these influencers, it failed to implement effective supervisory procedures that complied with FINRA Rules and securities law to oversee the communications its influencers were posting online. Therefore, FINRA found this resulted in social media posts that violated multiple FINRA Rules for communicating fair and balanced investment information to retail customers. Firms should consider the lessons to be learned from M1 Finance’s experience.
Background
M1 Finance provides self-directed trading to retail investors through a mobile app on its website. For more than three years between January 2020 and April 2023, M1 Finance paid approximately 1,700 social media influencers more than $2.75 million to promote the firm by posting promotional information online to potential retail customers on various platforms resulting in more than 39,400 new accounts with the firm. M1 Finance paid the influencers a set fee for each new account opened with no limit on the total any influencer could earn from generating new accounts. In furtherance of this arrangement, M1 Finance directed the influencers to include in their social media posts a hyperlink to the firm’s website through which potential retail customers could open and fund a brokerage account with the firm. M1 Finance also provided graphics to include in posts and a “Welcome Guide” for influencers highlighting specific services the firm offered, like its margin lending program, and touting the lack of commissions or management fees associated with the firm’s products. The Welcome Guide even invited influencers to contact M1 Finance with their own promotional ideas.
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