The Financial Industry Regulatory Authority (FINRA) imposed an $850,000 fine on M1 Finance for inadequate supervision related to its use of social media influencers in promoting brokerage accounts.
This decision stems from M1 Finance’s marketing strategy, which heavily relied on over 1,700 social media influencers from January 2020 through April 2023.
These influencers were instrumental in highlighting the advantages of M1 Finance’s brokerage accounts, appealing to audiences with the prospect of achieving financial freedom and flexibility.
However, FINRA’s investigation uncovered several infractions by M1 Finance and its influencers, particularly the dissemination of misleading information about the firm’s services.
The regulatory body pinpointed the failure of social media content to comply with required accuracy standards, thus misguiding the public about the ease of generating income through the platform.
Bill St. Louis, FINRA’s Executive Vice President and Head of Enforcement, emphasized the importance of adhering to public communication rules, especially as social media becomes a crucial tool for investors.
He stated, “As investors increasingly use social media to inform their financial decisions, FINRA’s rules on communicating with the public are especially critical.
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.”
One significant area of concern was the deceptive portrayal of M1 Finance’s margin lending program.
Influencers incorrectly suggested that margin loans could be repaid anytime without repercussions, a claim that misrepresents the true nature of financial obligations.
Furthermore, M1 Finance was criticized for not reviewing or endorsing influencer posts, a clear violation of regulatory standards.
The lack of a comprehensive supervisory system and formal procedures for overseeing influencer communications were also highlighted as major failings.
In response, M1 Finance has agreed to the findings and pledged to improve its compliance practices.
In a related development, FINRA recently fined Morgan Stanley Smith Barney LLC $1.6 million for its delay in resolving failed inter-dealer municipal securities transactions and for not securing control of municipal securities positions within the stipulated timeframe, as reported by Finance Magnates.
The probe into Morgan Stanley revealed the firm’s failure to address 239 inter-dealer municipal transactions overdue by more than 20 calendar days, amounting to a total of approximately $9 million from December 2016 to August 2021.