Influencer Infractions: M1 Finance’s Regulatory Reckoning

How a Social Media Strategy Led to an $850,000 FINRA Fine and a Fintech Wake-Up Call

In a landmark enforcement action, the Financial Industry Regulatory Authority (FINRA) has imposed an $850k fine on M1 Finance LLC for violations that are related to their social media influence program. This actually marks the first instance where FINRA penalized a company for its influencer marketing practices.

Between January 2020 and April 2023, M1 Finance contacted almost 2,000 influencers to promote its services on social media platforms. These influencers were then given a link to M1 Finance’s website, so potential clients could follow the link and open new brokerage accounts.

FINRA’s investigation showed that the content these influencers posted included exaggerated and misleading claims, which is a direct violation to FINRA Rules 2210 (Communications with the Public) and 2010 (Standards of Commercial Honor and Principles of Trade).

An example that FINRA cited was an influencer advertising M1 Finance’s margin lending program that customers could pay back margin loans at any time, and there is no set time period. Actually, if you understand margin investing, you’d know that investors are not entitled to any time extension and the firm can force a sale of securities if a margin call does happen.

Photo by Carlos Muza on Unsplash

So it shows that M1 Finance’s lack of oversight and the flat fee compensation model, which rewarded influencers based on the number of accounts opened through their referral links, may have inadvertently encouraged these influencers to prioritize quantity over compliance with regulatory standards. This pay structure could potentially motivate influencers to make more aggressive claims or promises about M1 Finance’s services to maximize their earnings, sometimes at the expense of accuracy or honesty.

In the end, M1 Finance’s oversight lapse and the allure of easy earnings opened a Pandora’s box of regulatory missteps. As the dust settles on this costly lesson, the fintech world watches as they HODL their breath, reminded that in the race to innovate, the rules of ethics remain non-negotiable.

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