About 45 celebrities were reportedly part of a group of 90 social media influencers who recently received letters from the Federal Trade Commission (FTC) “educating” them about the government's advertising disclosure requirements.

This was an issue that needed to be tackled, given that the dollar amount of endorsement contracts between brands and social media influencers—such as celebrities, athletes and reality stars—are reportedly as high as seven figures. Violating FTC advertising requirements could cost influencers and brands a lot of money—not to mention reputational injury. In the past, FTC enforcement of advertising rules was focused on brands, however social media influencers are increasingly on the FTC's radar as a result of the rise of Instagram and other social media platforms as marketing tools. Given the high financial stakes involved and the influencers' ability to reach millions of consumers, the FTC is keeping a close eye on influencers and their posts.

The FTC monitors advertising activities pursuant to the Federal Trade Commission Act, which charges the FTC with, among other things, preventing “unfair or deceptive acts or practices,” including advertising that is false or misleading in any material way. The FTC published the Guides Concerning the Use of Endorsements and Testimonials in Advertising (also known as the Endorsement Guides) to provide guidance regarding how the FTC evaluates certain endorsements and testimonials in advertising.

According to the Endorsement Guides, if there is a “material connection” between an advertiser and an endorser, the connection must be “clearly and conspicuously disclosed, unless it is already clear from the context of the communication.” This applies to both advertisers and endorsers. A “material connection” is something that may affect how a consumer may assess the credibility of the endorsement, such as a close relationship, the gift of a free product, or a payment. In other words, if an endorser/influencer is paid by a brand and endorses the brand or its product(s) on social media, the influencer's followers should be made aware of such payment so the followers can evaluate how much weight to afford the influencer's (paid) endorsement of the product.

Complying with this requirement can be tricky due to social media's space constraints which can cause messages to be interpreted differently by consumers. So how should a material connection be disclosed? Following are a few guiding principles from the FTC that all brands and influencers should keep in mind: