BY: Megan R. Miller, RBFL Student Editor
“Finfluencer” activity has exploded in recent years, especially during the COVID-19 pandemic. According to Bloomberg Wealth, “finfluencers” are online personalities who share financial advice, particularly on social media. Social media platforms like YouTube, TikTok, and Instagram are full of young people offering investment, budgeting, and other financial advice to large, also mostly younger Gen Z and Millennial audiences.
The explosion of young people investing and consuming financially focused social media content may be due in part to the 2019 “stampede” to eliminate stock-trading fees at investment advisory firms such as Fidelity and TD Ameritrade following Robinhood’s uptick in popularity. Regardless of the primary cause of the uptick in finfluencing, its effects are clear; for instance, r/WallStreetBets, a popular investing subreddit, grew from 4.5 to 6 million members overnight.
While increasing the accessibility of investing via the internet and social media allows younger investors to access the market, regulators and finance law experts have raised concerns that come with the finfluencer market and the uptick in online investment access. Although social media finfluencer activity may be permissible under the FTC’s online advertising rules, multiple areas of financial influence appear to be in violation of securities regulations prohibiting unauthorized investment advising.
Three main issues affecting finfluencers and securities regulators today include the recent uptick in “meme stocks,” which often results in market manipulation, sometimes at the hands of previously registered investment advisers; celebrity endorsements of their special purpose acquisition companies (“SPACs”); and the unregulated distribution of unauthorized investment advisory services from cryptocurrency finfluencers.
Several securities industry regulators including the SEC and FINRA have announced plans to address and remedy these alarming increases in fintech securities law violations. SEC chair Gary Gensler has announced plans to address gaps in cryptocurrency regulation and SPAC endorsements in particular. However, little has been done to actually address and account for these violations or legal loopholes.
In the case of SPACs, Congress proposed two pieces of legislation, one of which would require SPAC management to be held liable for their forward-looking statements. However, no proposed legislation to date exists to help regulate things like meme stocks and potentially unauthorized cryptocurrency investment advice distribution. In a highly regulated industry like financial services, much more guidance and regulation is needed to ensure that young investors are not taken advantage of or misled with respect to their investment vehicles and their investment advisers.
Sarah Ponczek, Gen Z and Millenials Really are Trading More in the COVID Era, BLOOMBERG (Aug. 19, 2020), https://www.bloomberg.com/news/articles/2020-08-19/gen-z-and-millennials-really-are-trading-more-in-the-covid-era [https://perma.cc/5M6Y-Y36L].
Misyrlena Egkolfopoulou, Wall Street Influencers Are Making $500,000, Topping Even Bankers, BLOOMBERG WEALTH (Sept. 17, 2021, 12:01 AM EDT), https://www.bloomberg.com/news/articles/2021-09-17/social-media-influencers-income-advertising-wall-street-products [https://perma.cc/A6GN-RF4T].
Jeff Cox, Fidelity joins the stampede to eliminate fees for online trading, CNBC (Oct. 10, 2019, 7:56 AM EDT) https://www.cnbc.com/2019/10/10/fidelity-joins-the-stampede-to-eliminating-fees-for-online-trading.html [https://perma.cc/G4WP-YD8B].
Shona Ghosh, Reddit Group WallStreetBets Hits 6 Million Users Overnight After a Wild Week of Trading Antics, BUSINESS INSIDER (Jan 29, 2021, 8:14 AM), https://www.businessinsider.com/wallstreetbets-fastest-growing-subreddit-hits-58-million-users-2021-1 [https://perma.cc/WDX7-D4CV].
See, e.g., SEC, Investor Alert, “Celebrity Involvement with SPACs” (March 10, 2021), https://www.sec.gov/oiea/investor-alerts-and-bulletins/celebrity-involvement-spacs-investor-alert [https://perma.cc/Z8Z8-WM4E]; FINRA, Investor Insight, “Investing in a SPAC” (March 29, 2021), https://www.finra.org/investors/insights/spacs [https://perma.cc/FP83-T3TD].
FED. TRADE COMM’N, .com Disclosures: How to Make Effective Disclosures in Digital Advertising (2013), https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-revises-online-advertising-disclosure-guidelines/130312dotcomdisclosures.pdf [https://perma.cc/8PHR-AQRQ].
Avi Salzman, Gary Gensler Says SEC is Focusing on SPACs and Retail Trading Apps, BARRON’S (June 23, 2021 11:01 AM ET), https://www.barrons.com/articles/gary-gensler-says-sec-is-focusing-on-spacs-and-retail-trading-apps-51624460483 [https://perma.cc/Y8C6-V5XH].
See Bob Pisani, Gary Gensler has a full agenda as he gets set to take over the SEC, CNBC (Apr. 14, 2021, 7:39 AM EDT), https://www.cnbc.com/2021/04/14/gary-gensler-has-a-full-agenda-as-he-gets-set-to-take-over-the-sec.html [https://perma.cc/8QYL-WG7J] (discussing Gensler’s focus on addressing gaps in cryptocurrency regulation and the gamification of stock trading following the GameStop stock market frenzy).
House Proposal, Certain Special Purpose Acquisition Companies Excluded from Safe Harbor for Forward-Looking Statements, https://financialservices.house.gov/uploadedfiles/5.24_bills-117pih-hr____.pdf [https://perma.cc/DU2B-YBTL]; House Proposal, Enhanced Disclosures for Blank Check Companies During IPO and Pre-Merger Stages, https://www.kennedy.senate.gov/public/_cache/files/8/c/8c5a665c-b7e8-48ce-a2bf-6cd1dbc504c3/A1E8BB9BDA5EB64CB106B92056D91B57.the-sponsor-promote-and-compensation-act-spac-act-.pdf [https://perma.cc/47G8-V9TT].