Financial Stardumb? Celebrities Endorsing Investments

12/4/2022

by David Hagenbuch - professor of marketing at Messiah University -
author of Honorable Influence - founder of Mindful Marketing

Famous people have promoted products for centuries, encouraging others to buy everything from cereal to cigarettes. Cryptocurrencies recently tapped celebrity associations with great success, but a notable bankruptcy and the industry’s slide have led to serious financial fallout for many investors. Such unfortunate events beg the question: Should celebrities ever play the roles of investment advisors?

Babe Ruth promoted tobacco products. Doris Day endorsed a steamroller. George Foreman may be better known for his namesake grills than for his storied boxing career. Over the past couple of years, many celebrities inked endorsement deals in the new and fast-growing realm of cryptocurrency. Those who have attached their names to the digital dinero include:

UFC superstar Connor McGregor with Tiger.Trade
Tennis great Maria Sharapova with MoonPay
Rapper Snoop Dog with a variety of crypto exchanges
Actor Matt Damon with Crypto.com

However, probably the most infamous crypto partnerships have been between the now bankrupt Bahamas-based cryptocurrency exchange FTX and a lineup of all-star athletes and A-List celebrities, including: Tom Brady, Gisele Bündchen, Stephen Curry, Kevin O’Leary, and Naomi Osaka.

Even when products have little connection to celebrities’ specific talents, star-studded endorsements are often very effective for a few reasons:

Celebrities grab attention. If you’ve ever seen a celebrity in an airport or walking down a city street, you probably watched them for at least for a moment.
Individuals are very interested in the lives of famous people and those who know them. That’s why there are crowds of royal watchers and television shows like Basketball Wives.
People often want to pattern their lives after those of celebrities. Gatorade famously capitalized on that inclination a few decades ago with its “Be Like Mike” ad campaign, and most other celebrity-based promotion includes a similar inference – if you buy this product, you’ll be at least a little like the star who’s selling it.

While I know a little about advertising endorsements, investing and cryptocurrency are not my wheelhouse, which led me to reach out to two colleagues who have both that skill set and knowledge. I asked each to share his thoughts about celebrities endorsing financial products.

Jansen Hein, is the chief financial officer and chief operating officer at Illinois State Board of Investment (ISBI) where he actively manages all portfolio operations, business operations, and finance/accounting related functions and processes for ISBI, a $24B+ state pension asset investment agency. Before joining ISBI, he served as a certified public accountant and consultant for more than eight years with Ernst & Young.

Dwayne Safer is a finance professor at Messiah University where he teaches courses in Financial Management, Corporate Finance, Security Analysis and Evaluation, Financial Institutions Management, and Investments. He holds the designations of CFA, CFP, and CAIA. Before entering higher education, he was a senior vice president of corporate strategy & development for Citizen’s Financial Group and a director of investment banking at Stifel Financial Corp.

As their brief bios suggest, both men have extensive financial backgrounds that make them well-qualified to discuss what constitutes reliable investment advice, as well as who should offer it. Given those credentials, I was somewhat surprised that in their initial responses, neither expressed absolute objection to celebrities endorsing financial products:

Hein: “An ethically run business could see benefit from getting their message/product out through the use of celebrity endorsements, and I have no issue with that.”

Safer: “I don’t have a problem with celebrity endorsers of financial products and companies; however, the public oftentimes has difficulty separating the popularity and likability of the celebrity personality from their lack of expertise and knowledge in the company or product they’re endorsing.”

While both of these experts are open to the possibility of celebrities endorsing financial products, the preceding qualified responses foreshadow their more fully articulated beliefs, which detail significant criteria to meet in order for such sponsorships to be good for consumers. Together they construct three main hurdles that effective and ethical financial product purveyors must clear:

1) Transparency
To illustrate what celebrity spokespeople shouldn’t do, Safer references the recent case in which the SEC fined Kim Kardashian $1.26 million for her failure to disclose that EthereumMax paid her $250,000 to promote EMAX tokens on her Instagram account. He contrasts her incomplete communication with that of Barstool Sports founder Dave Portnoy, who was upfront that he received an ownership stake in the ETF BUZZ in return for promoting it in his tweets.

Safer similarly contends that organizations must be transparent in terms of whether they are investing individuals’ money, like mutual funds, ETF’s, and hedge funds do, versus simply serving as custodians of those funds, like brokerage firms and banks often do. As an example, he points to FTX, whose clients thought the exchange was only acting as a custodian of their money, when in reality it was investing it in a crypto hedge fund of a sister company, Alameda.

2) Trust
That kind of transparency is key to earning investors’ trust, as Hein shares: “To me, decisions regarding financial services providers must come down to personal trust. Regardless of the product/provider.” He adds that although he is not personally inclined to extend such trust for financial decisions to celebrities, he recognizes that some consumers are, in which case they must understand and accept the risks, while the celebrities and the businesses that employ them are culpable for any deception, intentional or not.

Hein believes that trust of service providers is especially important in the case of investing because laws often lag behind industry practices, legal enforcement is sometimes lax, and many organizations simply choose not to self-regulate. He also emphasizes how the unique nature of investment risk necessitates more than typical trust:

“We are not talking about buying a $100 product, with limited downside, but about investing in ways that may materially impact a consumer's current and future stability. The scrutiny of consumers should be different for any financial services marketing than for other products.”

Safer also underscores consumers’ responsibility for determining who to trust, referencing FTX and suggesting that the exchange’s use of a large number of high-profile “finfluencers,” e.g., Kevin O’Leary and Larry David, appeared to be “a ploy to engender the trust of the public so that they would invest in the growing crypto craze through FTX without doing basic diligence on the company.”

3) Technical Competence
Deciding who to trust is an age-old social challenge that extends far beyond investment relationships. The character of the other person is certainly one of the main trust criteria. Another is their competence, i.e., Are they able to do what their role in the relationship requires?

In the case of celebrities promoting investments, their financial competence is a very legitimate question. It’s not surprising that both Hein and Safer, whose extensive experience and education have provided them with such expertise, wonder whether most celebrities know what’s needed to competently endorse financial products. The two agree that, unfortunately, celebrities’ popularity often appears to be more persuasive to consumers than any financial proficiency they may possess:

Hein says, “Consumers must accept that their willingness to be persuaded to make financial transactions based on a celebrity endorsement may have little/no meaningful merit on the quality of the product or service. Is Steph Curry a financial professional? Is Kim Kardashian an investment professional? I am not saying that these two individuals are foolish or unwise (both are extremely successful at their crafts/professions).”

He continues, “What I am suggesting is that it is very possible that either (1) they are making these endorsement determinations themselves and we must acknowledge their limitations in doing so or (2) they themselves are relying on the advice of other financial professionals regarding the products/companies they choose to endorse — individuals we as general consumers do not know or necessarily trust.”

As shared above, Safer says he has no problem with celebrities endorsing investments, but he is concerned that “the public oftentimes has difficulty separating the popularity and likability of the celebrity personality from their lack of expertise and knowledge in the company or product they’re endorsing.”

He expands that belief with a more specific example: “I may think Tom Brady is the best QB of all time, but I’m pretty sure he knows very little about crypto and how crypto assets should have been custodied at FTX. In fact, he’s likely just collecting a big check from FTX and not caring about the details.”

Should celebrities endorse financial products? Neither Hein nor Safer offer an unequivocal, “No,” but together they use the tools of transparency, trust, and technical skills to paint an exacting picture of investment advice done right that’s undoubtedly very challenging for most famous spokespeople and their firms to replicate.

However, in the rare cases in which such a portrait can be perfected, celebrity investment endorsers can play a supporting role to “Mindful Marketing.”

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24 Comments

Ethan Dyrli

12/5/2022 02:21:44 pm

This is an important topic given how many celebrities, especially online influencers are creating or promoting crypto currencies then scamming their fans out of money, or leading them into a scam. There's little thought to how it affects consumers

Brooke Lindsell

12/5/2022 02:47:34 pm

While I believe that using celebrities to sell products is a brilliant marketing strategy, there have been countless times in which the celebrities themselves are not educated enough on what they're selling.

Rochelle Micaiah Saldaña link

12/5/2022 09:04:22 pm

I appreciate the thoughts and opinions expressed in this post; it raises a number of important concerns about celebrity endorsements of cyrptocurrency.

I think that the point about transparency is especially vital in today's world of "influencers." Influencers and celebrities need to be transparent about who is sponsoring them because the mere fact of sponsorship may affect what an influencer says about a particular product or organization. It always helps me discern why an influencer is sharing something when I see the "sponsored by" notice on Instagram.

I also think that it is important for consumers to be aware of the fact that celebrities and influencers are sometimes paid to promote certain things. Discernment must be used when deciding who to trust when making purchasing decisions. For example, just as I don't trust Kim Kardashian's opinion with financial decisions, I also don't trust Brie Larson when deciding which car to purchase.

Caleb Narber

12/6/2022 11:21:29 am

When it comes to the idea of having celebrities endorse investments, I think it can be a good idea. For some investment opportunities many potential consumers do not have a great depth of knowledge. Having a celebrity publicize certain investment opportunities can help lead people into educating themselves on certain topics. Like the article mentioned, it can be risky because consumers may only look at the celebrity's particular popularity and disregard their actual expertise on these investment opportunities.

Emma Johnson

12/7/2022 10:25:35 am

I think it is important to use celebrities in some ads because it is a very good advertising technique. When people see a celebrity they like using a product they also want to buy the product and it can create great sales for a company. However, I think celebrities should be careful in what companies and products they support. This is because is they support something that then causes negative effects for customers in the future then their reputation will be ruined and it could effect their career. I also feel the same way for businesses. They should be careful as to what celebrities they choose to endorse their products. This is because if they celebrity makes a wrongful action in the future then customers will not like that the business chose that celebrity to support them which could lead to a decrease in sales for the business.

Quinn Yokoyama

12/7/2022 10:53:21 am

I think there should be some process to see if any type of crypto currencies investments isnt a scam. Just like how Celebrities do gambling sites like fanduel, but it doesnt get much complaints because gambling sites have tons of regulations to see if it is fair or not.

Harry Schappell

12/7/2022 11:36:29 am

I think it is important to talk about how celebrities sometimes endorse things that may not set the best example for their fans. I believe that sometimes we put celebrities on these platforms above the rest of humankind, and we need to start looking at them as human beings again.

Edward Mendez

12/7/2022 02:03:20 pm

While I see the appeal and reason for these companies having celebrities endorse their products, I do not think mainstream public figures are the way to go. The general public seems to confuse credibility with notoriety. These individuals do not have the experience nor the knowledge to promote these products. This can go downhill very quickly and lead to very big financial losses for big companies if they are not careful. At the end of the day, a celebrity is not going to turn down a big check to slap their name on something or make a quick instagram post. It is up to these companies to stop seeking these celebrities because they won’t gain much from it other than attention. Attention doesn’t always equal profit.

Delainey Gray

12/7/2022 02:34:18 pm

When it comes to personal finance, it's just that: personal. At the end of the day, the responsibility for managing an individual's finances falls on that individual. Because of this, I don't think celebrity financial advice is inherently wrong. You can get financial advice anywhere you go; it comes down to you to discern how to manage your money. All this said, I will add that I think endorsements like those of Kevin O'Leary and other finfluencers are pretty dangerous. These people are known for their success with money, and it is all too easy to blindly trust them. After all, is it really blind trust? They do seem to have the credentials. Cases like FTX just prove that there can be unpredictabilities in the market, and you have to manage your personal funds with discretion.

Andrew Fretz

12/7/2022 03:13:54 pm

I think having celebrities promote these products is okay, as long as the general public takes the recommendation with a grain of salt. Most of the time the celebrity does not know all the facts about what they are promoting, and they could be getting paid to do so. I think the public should so their own research when they see their favorite celebrity promoting a product in the future.

Alyssa Meier

12/7/2022 03:39:05 pm

I would have to agree with Safer and Hein that it is okay for celebrities to endorse financial products and sometimes can be very successful. There are some complications like mentioned in the article with people, whether that be the celebrities or the organizations, not being completely transparent about what they are offering like what exactly they do with the money being invested into their company. In the end, I think it is ultimately up to the consumer to do their own research and make their own educated choices with their money, whether a celebrity supports a brand or not.

Kevin Clarke

12/7/2022 04:47:23 pm

I think that companies using celebrities to promote their products is a good practice in the sense that the celebrity already has a set fan base to follow them, however morally I find it a bit distasteful. The celebrity is mainly there for the money they can earn from the brand deal, not the knowledge they could spread to one of their fans. So it almost feels misleading, like a fan may think "oh they have my favorite celebrity endorsing them it must be good" when in reality that is not the case. I think it is better to do research on a product and see what the product is truly about other than following a celebrity's endorsement.

Hannah Mark

12/7/2022 04:53:19 pm

I think that the idea of trust is an important component to this article. When buying a product which was promoted by a celebrity, you have to take a step back and think about the motives they have for promoting the product in the first place. Is it solely because they are getting paid to do it, or is it because they trust and believe in the product themselves, thus promoting it to the public?

Ryan Quinn

12/7/2022 07:08:33 pm

I think that having celebrities endorse or promote a product or company is a smart marketing strategy. however, I think that people need to look past the celebrities and focus on what value would a good or service really provide to oneself because we don't know how transparent and educated celebrities are with some of these products or companies that they are promoting.

Davis Pagett

12/7/2022 08:33:11 pm

I would say that using celebrities to promote certain products is a very good marketing strategy. However, I don't think using celebrities to promote something like money and cryptocurrency is a good idea.

Dylan Yoder

12/7/2022 08:44:34 pm

With all of the volatility surrounding cryptocurrency, someone who is not familiar with the heavy risk could definitely be persuaded by a celebrity who is not familiar with the product either. Using celebrities is nothing new and is not the problem here. I think the problem is that not enough people understand cryptocurrency and the risk with getting involved with it.

Daniel Smith

12/7/2022 08:45:23 pm

I am perfectly fine with celebrities endorsing products, however, if they are a celebrity that I do not like, I probably will not buy the product. I also find it hilarious that people get angry at the celebrity who marketed the crypto when the crypto stocks go down even though they should be angry at the company they bought it from or at themselves for being stupid enough to buy crypto.

Christian Foltz link

12/7/2022 09:09:07 pm

I agree that it can be ethical for companies to hire celebrities to help promote their products. It should be common sense that the product doesn't directly correlate to the celebrity endorsing them. For example, if you buy Jordan shoes, that doesn't mean you can automatically dunk. The purpose for celebrities to endorse products is because they enjoy using that product and want to use their platform to tell their fans about it. Of course, they deserve to get paid to advertise the product but that shouldn't be the only goal.

Matt Puleo

12/7/2022 09:45:27 pm

I believe that it is alright for celebrities to endorse products. I do not support celebrities endorsing crypto currencies because they have money to throw at it. whether or not the crypto investment pays off for them it doesn't make it or break it for their finances. These kinds of endorsements with celebrities could falsely influence someone to invest and if the crypto stock tanks this could be very detrimental on their finances.

Adam Klapper

12/8/2022 12:18:48 am

I don't have any specific beliefs on this matter. I think there can be considerable risk for a company when using a celebrity endorser. It is one situation to have a celebrity that is actually relevant to the product/service being advertised, but it is a whole other one when the celebrity has nothing to do with the product. Many people could be mislead by a celebrity and only buy a product because of the advertisement. The risk is that the celebrity could recommend a product that he/she doesn't even use and the user could be very disappointed with it.

Johnny Mcbride

12/8/2022 02:16:26 am

The use of celebrities in advertisement is absolutely a critical part to marketing as we are more likely to make purchasing decisions with the encouragement of someone we, at least think, that we know and trust. Celebrities have instant credibility as spokespeople and they can help consumers take an advertisement seriously which carries great value to marketing firms. Still, as this article acknowledges, there is an inherent danger placed on the consumer as they can be misguided into poor investments by a celebrity who has gained a false sense of credibility on a given topic. There is a place for celebrities in marketing, but to remain ethical, celebrities should not be used to consciously mislead consumers and the consumers themselves must be diligent in confirming the value of what celebrities contribute to marketing.

Drew Weaver

12/8/2022 11:26:48 am

I believe that celebrity endorsements can be ok but the people marketing this way need to be extremely careful. You have a lot of influence and power when a famous person is telling people to get a product so you definitely have to have a good and useful product that people are buying. Other wise you are only creating a good exchange for the company which is not mindful marketing at all.

Angel Ortiz

12/8/2022 12:59:16 pm

This is a very interesting topic is very much so relevant considering I can’t remember the last ad that i’ve seen that didn’t have a celebrity in it, even if it was a fictional character. I would agree that these ads have a great potential to be “mindful”. While it can be problematic when celebrities aren’t educated on the products they are advertising, I also think it’s the consumer’s responsibility to do their own research on the product before they blindly trust their opinion.

PJ Riddell

2/6/2023 01:27:16 pm

The first point discussed about the importance of transparency I thought was especially important to talk about in regards to the overall ethics of celebrity endorsements. I agree with Safer in that companies and celebrities should be more transparent about terms of payment for endorsements, that way the public is more clearly able to draw a line between a personal endorsement or promotion, vs. a paid endorsement just so the company could use the celebrity as a figurehead. This is especially relevant in today's social-media saturated society, where celebrities can post their personal opinions right alongside paid promotions; as Safer talked about, it can be hard to tell the difference. However, while we can blame companies or celebrities all we want, ultimately the decision to purchase something or do something is in our hands. While it may seem unethical to tell white lies, use celebrity endorsements, or exclude important information, the reality is that advertising is not all about truth, it's about exaggeration of the good of a product. Ultimately, we the consumers have to take responsibility for additional research before making financial decisions, with the awareness of what's an advertisement and what's a true and unpaid testimonial of a product or service.

Financial Stardumb? Celebrities Endorsing Investments

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