​Commercial E-newsletter​​​

Your Customers are Talking. Are You Listening?

The universe of social media is expanding, with curious names like Orkut and Ning joining the more established Facebook and Twitter. But social media is no longer just a sandbox for Millenials – it offers businesses that embrace it new opportunities to build awareness of their products and services, increase sales and revenue, and even find the right employees.

Digital marketing website eMarketer.com predicts the number of social network users will grow 16 percent worldwide in 2013. Mirroring that trend, a 2012 University of Massachusetts Dartmouth study of Fortune 500 companies found that 28 percent had corporate blogs, 73 percent had Twitter accounts, and 62 percent had corporate YouTube accounts.

Social media is not just for corporate giants; middle market businesses can also benefit. “People are realizing that they can use social media to make better, faster, and more satisfying decisions,” says Bill Parkes, executive vice president and chief digital officer at nFusion, a digital-centric integrated marketing agency in Austin, Texas. “The implication for businesses is, if you don’t start figuring out how to be a part of that world, you’re going to get cut out.”

Embracing this growing phenomenon requires a radical shift away from traditional thinking about marketing. “This is not about broadcasting your product and service,” Parkes says. “The real power of social media is in driving engagement and turning the whole decision-making process inside out.”

As consumers face overwhelming clutter in the marketplace, they are engaging their network of online connections that they know and trust to inform their buying decisions. They don’t have to rely on the integrity and trustworthiness of a marketer. “If you have a great product or service, people are going to want to talk about it,” Parkes says. “With social media, you’re giving them massive megaphones to do so.”

Parkes says companies that are new to social media must understand what the “contextually relevant” sites are where they should have a presence. The simplest way to get started is to create a Facebook page that lists your products or services or set up a LinkedIn account. Photo sharing sites Pinterest and Instagram (which have seen their share of social media traffic grow recently by 5,124 percent and 17,319 percent, respectively) convey less information but are still very effective in creating “buzz.” Thanks to its algorithmically driven content that interprets what information it thinks is relevant based on one’s field of interest or career, LinkedIn is seen as the best option to engage colleagues in an industry-specific discussion, recruit talent, or position the CEO as a thought leader. Facebook and LinkedIn have both free and paid options.

In order to build a following on your selected social media site, Parkes recommends using email, advertising, or industry events as a “call to action” to encourage stakeholders to follow your brand as a Facebook fan, “Re-Pin” a company-related photo on Pinterest, or respond to your “Tweet.”

Once a company has established a social media presence, the possibilities are endless. They can engage in real-time chats with customers; conduct surveys, including asking what kind of coupons customers prefer to receive; offer sneak peeks at future products; post endorsements from happy customers; and link to the company website. One example of the power of social media: After a traditional ad campaign fizzled, tongue cleaner Orabrush re-launched recently with humorous videos that went viral. Today, Orabrush’s YouTube channel boasts over 53 million views, and the product has landed shelf space at Wal-Mart.

Parkes cautions that companies must regard social media as an ongoing program rather than a one-time project. “You need to be ready to be committed to it for the long haul. Once you get a page going, it requires someone to develop and publish content, engage with the community, and mitigate customer service concerns.” He adds that while highly regulated industries like pharmaceuticals and financial services can use social media, extra diligence is required to know what can and cannot be communicated.

Still, social media is here to stay and even if a company isn’t involved, it doesn’t mean its customers are not. “You can say, ‘This isn’t important to us, it’s a fad, it’s hard,’ ” Parkes says. “It is hard, because it’s a very different way to think. But the genie is out of the bottle and he’s not going back in. The question becomes, how are you going to fold this new reality into your business plan? It throws out the argument that ‘That makes sense for the Fortune 500 of the world, but it doesn’t apply to me.’ No, it does apply to you.”

401(k) Plans Help Prepare Employees for Retirement, but CEO’s Must Look to the Specialists to Sweat the Details

Are your employees sufficiently prepared for retirement? The U.S. Social Security Administration estimates that the average American will need from 70 to 80 percent of his or her pre-retirement earnings to maintain their standard of living after they leave the workforce. The Washington, D.C.-based Employee Benefit Research Institute reported in late 2011 that retirement plans were available to 62 percent of workers, including those in middle market companies. But as defined benefit pensions (a fixed amount guaranteed every month, until death) become more expensive for companies to maintain, and therefore less common, executives are turning increasingly to benefits like 401(k) plans as an alternative retirement savings tool. The employer often matches these contributions, which are invested in various financial products. Obviously, the potential exists for more employees to benefit from a 401(k), but before employers decide to roll out a new plan, they should understand the increased responsibilities involved.

When a company includes a tax-deferred 401(k) plan as part of its benefit package, it assumes the role of a fiduciary, or legal trustee, of the plan, and it must comply with a maze of daunting legislative and IRS requirements. “That’s why it’s important to seek the counsel of a specialist,” says Joe Fortino, vice president and retirement planning consultant at Comerica Bank. “Companies realize that they can’t go it alone because the requirements are so complex. With a consultative partner who understands the fiduciary role and shares the responsibilities, an employer can focus on its own operations.”

Here are some examples of what a company must do to keep its 401(k) plan in good standing:

• The annual IRS Discrimination Test requires employers to ensure that both highly compensated employees (defined for the 2012 tax year as those with income greater than $115,000) and non-highly compensated employees benefit equally from a company’s retirement savings plan. The rule states that the average contributions of highly compensated employees cannot exceed the average contributions of other employees by more than 2 percent. If the contributions of the highly paid employees are greater than that and the employer fails to correct the imbalance, the plan could lose its tax benefits. “The spirit and intent of this rule is to ensure that employers aren’t setting up these programs to benefit the owners or highly compensated executives and ignore the rank and file,” says Fortino. “The government lets you set up these programs and gives you tax advantages, but they have to benefit all employees, not just certain groups.”
• As of August 2012, section 408(b)2 of the U.S. Employee Retirement Income Security Act requires employers to disclose all costs involved in setting up a 401(k) plan, whether they are paid by the employer or the employee. These can include mutual fund expenses, statement fees, costs associated with borrowing from one’s account, or distribution fees charged if an employee leaves the company.
• Employers must produce a “Summary Annual Report” that breaks down plan contributions and expenses. They must also disclose their plan’s financial condition, investments, and operations on IRS Form 5500. A Summary Plan Description that spells out features including employees’ rights must be given to employees at the beginning of their eligibility period and at any time a plan feature changes.
• As part of its fiduciary role, an employer must ensure that the investments it offers employees through its 401(k) plan meet certain standards for performance, cost, and risk. Companies must also regularly benchmark their plans with others in the marketplace to confirm the competitiveness of their features and fee structure.

Partnering with a knowledgeable consultant can help businesses avoid running afoul of the many rules and regulations involved in setting up and managing a 401(k). “The big benefit for an employer is that you have someone looking over your shoulder making sure that you are properly executing your fiduciary responsibilities,” Fortino says. “The cost of engaging a consultant is very little compared to the overall cost of offering this benefit. It can actually save money by keeping costs competitive and helping your company avoid fees and penalties.”

To learn more about establishing or managing a 401(k) for your company, contact Joseph Fortino at 248-645-4123 or jmfortino@comerica.com.

Comerica Bank Member FDIC. Equal Opportunity Lender.

Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Wilson, Kemp & Associates, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc., Wilson, Kemp, & Associates, Inc., and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. 

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Liquidity Management in a Changing Regulatory Environment

Company treasurers appreciate bank deposits as one of the safest and most liquid positions in which to park cash needed on short notice to pay suppliers, replenish inventory, make payroll, or to fund a merger or acquisition. Bank deposits were made especially attractive on Dec. 31, 2010, when the Dodd-Frank law established temporary unlimited deposit insurance for non-interest-bearing transaction accounts at all FDIC-insured depository institutions. But when that provision expired at the end of 2012 and FDIC insurance returned to the previous $250,000 per depositor, treasurers began to consider alternative positions.

Today, money market mutual funds, which have traditionally been preferred for their ability to balance capital preservation, yield, and liquidity, are taking a greater share of treasurers’ cash. These funds are of particular benefit to middle market companies because the fund managers offer research, risk analysis, and diversification – a “50,000-ft. view” – to which a lean treasury staff may not have access. But as company treasurers put more cash into these instruments, experts caution of the potential regulatory changes that could affect their investment strategies.

While no major rule changes involving money market mutual funds are imminent, that hasn’t stopped legislators and regulators — from former SEC chairwoman Mary L. Schapiro to the U.S. Treasury’s Financial Services Oversight Council — from proposing reforms, including changing the accounting method used to value money market mutual funds to the variable net asset formula. The money market industry generally opposes such a move on the grounds that allowing share values to float would affect the predictability and simplicity of the current system, where the value of each share is always based on, and rounded up to, one dollar. Moreover, many current treasury management software systems are not compatible with variable net asset products.

“Over the years, corporate treasurers have voted with their dollars and avoided instruments that have a floating net asset value such as enhanced cash funds and ultra short bond funds,” says Jacob Nygren, senior manager at treasury management consulting firm Treasury Strategies Inc. in Chicago. “Those products haven’t attracted anything close to the $2.6 trillion that is currently invested in money market mutual funds.”

The Federal Reserve has proposed a “minimum balance at risk” requirement that would require funds to hold back a portion of an investor’s money for 30 days after the initial redemption, supposedly to dissuade a run on the fund if trouble is suspected and to absorb losses if the fund is liquidated.

From the company treasurer’s perspective, however, the rule would force them to drag out their crystal balls. “If I know that a portion of my money is going to be held up for 30 days when I redeem, it’s going to make me look ahead for anything that might risk my investment — and if there is, I’ll be motivated to pull my money out sooner, at the first hint of any problem,” says Nygren. “Companies use money market mutual funds because they are liquid. If your CFO needs access to cash, you can’t tell them to wait 30 days. That’s not the discussion you want to have.”

A third proposal that has been floated in the industry is for money market mutual funds to maintain a capital buffer that would “mitigate the incentive for investors to run, since there would be dedicated resources to address any losses,” Ms. Schapiro told InvestmentNews in 2011. Critics warn that this action would squeeze yields in an already tight market, push increased costs off to investors (the buffer has to come from somewhere), and pose a “moral hazard” issue.

“If I am a fund manager competing against other fund managers for assets in the marketplace, and if I know that I have capital buffer to fall back on, I have an incentive to take on more risk to gather more assets rather than focusing on my main responsibility of managing that risk in the best interest of my investors,” Nygren says.

Nygren says company treasurers must stay abreast of regulatory issues and be prepared to shift their strategies to maintain safety and liquidity. “If reforms go through, middle market and smaller companies could suffer because they don’t necessarily have large staffs or the expertise to properly manage their entire portfolios in-house,” he says. “Fund managers and company treasurers must actively lobby regulators to let them know how important money market funds are to daily cash management.”