If you’re considering hiring an influencer to boost your product sales or attract new clients, take heed—Finra’s Advertising Regulatory Conference recently issued several important warnings. As the landscape of marketing continues to evolve, so do the regulatory challenges surrounding the use of social media influencers, especially in the realms of crypto and investment.

The State of Influencer Marketing in Finance

During the conference, Finra revealed some troubling findings from their latest sweep of firms’ use of social media influencers. The results were striking:

• 70% Non-Compliance: Out of 15 firms and 1,300 communications reviewed, a staggering 70% were found to be out of compliance with advertising regulations.
• Lack of Disclosure: More than 55% of these firms failed to disclose that the advertisements were paid promotions.

Stephanie Gregory, associate director of the complex review team at Finra, highlighted the need for companies to take influencer partnerships seriously.

The Risks of Influencer Marketing

Here’s what we learned about the potential pitfalls when engaging influencers for financial products:

• Misinformation: Many influencers lack a solid understanding of the complex financial products they promote. This can lead to miscommunication and misguided investment decisions.
• Regulatory Scrutiny: With Finra ramping up its focus on compliance, firms risk hefty fines for non-compliance—like the $850,000 fine recently imposed on M1 Finance.

Educating Influencers: A Necessary Step

One crucial takeaway from Finra’s findings is the importance of training influencers. Here’s why:

• Understanding the Product: Influencers need to grasp the intricacies of what they’re promoting. This knowledge will help them communicate more effectively and compliantly.
• Compliance Training: Firms should ensure that influencers are aware of what they can and cannot say. This training should cover key financial terms and regulatory requirements.

Practical Steps for Firms

Here are some actionable steps firms can take to navigate the influencer landscape effectively:

1. Vet Influencers: Conduct thorough background checks to ensure influencers understand the financial products they’ll promote.
2. Maintain Records: Keep detailed records of all communications with influencers to demonstrate compliance if needed.
3. Implement Additional Controls: For influencers with large followings, consider establishing stricter controls to mitigate risks.

The Crypto Conundrum

The rise of crypto assets adds another layer of complexity to marketing practices. Finra has expressed concerns about how firms are advertising these products, particularly in social media formats.

Key Considerations for Crypto Marketing

• Clear Communication: Firms must ensure their marketing messages are easy to understand. Terms like “leverage” and “margin trading” can confuse potential investors.
• Transparency: It’s crucial for firms to provide transparent information about the risks associated with crypto products.

Joseph DeAngelis from Fidelity Investments pointed out the shift towards digital communication, stating, “I can’t really tell you the last time something came across my desk in a traditional format.”

Navigating Regulatory Waters

As investment products evolve, so must the marketing strategies surrounding them. Finra is focused on ensuring that firms adhere to advertising standards. Here are some critical points:

• Trendy New Products: Companies must provide clear disclosures about new offerings, especially those involving crypto or leverage.
• Healthy Dialogue with Regulators: Establishing a good working relationship with regulators can facilitate smoother communications and compliance.

Understanding Consumer Perception

Market volatility has driven interest in new financial products, but it’s essential to understand how consumers perceive these offerings.

The Importance of Clarity

• Avoiding Confusion: Many investors misunderstand the nature of their investments, particularly in products like target date funds and annuities. Firms need to ensure that customers clearly understand the risks and potential returns.
• Market Dynamics: Historical events, like the financial crisis of 2007, have shaped investor perceptions. Many were shocked to find out how much risk they held, even if it was disclosed in the fine print.

Conclusion

The insights from Finra’s Advertising Regulatory Conference underscore the importance of compliance and education in influencer marketing, especially in the realms of crypto and finance. As firms navigate this complex landscape, they must prioritise clarity and understanding in their communications.

Whether you’re a firm looking to leverage influencer marketing or an influencer trying to navigate the regulatory waters, remember: knowledge is power. Educate yourself and your partners to build a compliant and successful marketing strategy.