The main law that governs financial influencers is the Investment Advisers Act of 1940, which specifies what qualifies as investment advice and who must register with state and federal regulators in order to provide it. But there’s one exemption that reduces the risk to influencers, according to Joshua Escalante Troesh, a registered financial adviser and founder of Purposeful Strategic Partners: Unregistered individuals can dispense financial advice if they do so through a “publication of regular and general circulation.”
“That legal exemption is where a lot of people are hanging their hats on, until a court case happens, it’s hard to say one way or another,” he said. “Ultimately, it will be the Securities and Exchange Commission or a state going after an influencer for harming citizens in a court case that will determine whether they qualify for an exemption or not.”
Still, anyone who is harmed by financial advice online could sue in civil court, Escalante Troesh said, but whether a punishment is warranted would vary based on the regulators of the case and the state that they are located.
The prevalence of personal misinformation that exists on TikTok and the demand for solid finance advice are what Vivian Tu, 27, a former stocks trader at JP Morgan, believes made her account YourRichBFF blow up as soon as she launched it. She published her first video on Jan. 1, telling TikTokers that if they were looking for an account that would help them learn honest finance literacy tips, hers was it. Overnight, her video got 1 million views and within a week she’d amassed 170,000 followers.
It wasn’t long before financial institutions took notice. Wealthfront, Credit Karma, FinTron Invest, Insurify and Tastyworks are among her approximately 10 sponsors. She has more than half a million followers on TikTok and gets paid anywhere from $3,000 to $4,000 per post. For someone with a full-time job, it’s a huge commitment, she said. Outside of her current full-time day job, she spends anywhere from 10 to 15 hours per week managing her account.
“It was very out of the norm. Some people make videos for months and don’t have this kind of scale,” Tu said. “It was around the time folks were getting stimulus checks, people were thinking about money more so than usual and I think people were also very sick of seeing a lot of misinformation.”
Still, on her TikTok bio page, she cautions that her videos are “NOT FINANCIAL ADVICE.”
“Nothing I say should be taken as prescriptive direction,” Tu said. “Personal finance is never one size fits all for everyone.”
This article was provided by Bloomberg News.