There is a fine line between communicating too quickly and not communicating quickly enough. A one-day crash doesn't necessarily warrant client communication. In fact, it could spook clients over a bad situation they otherwise may not have been aware of. However, if the stock market plunges significantly over several days and nothing is communicated to your clients, you have waited too long. To determine whether you should send communication about a market crash to your clients, answer these questions:
- Is the cause of the crash a long-term issue (e.g., Brexit) that won't or can't be remedied quickly?
- Is this crash severe enough to break records or be historical in some way?
- Will the severity of the crash produce long-term harm to your clients' portfolio and threaten their long-term financial goals?
- Has the market significantly declined for several days in a row, spreading panic to the ordinary investor?
If the answer is "yes" to any of these questions, it's time to send communication to your clients.
When the situation warrants sending communication, script an email using the following talking points:
- Discuss the specific events or reasons that are causing the volatility (e.g., China, Federal Reserve, oil prices, Brexit, flash crash) and your thoughts about the importance of these events and their long-term impact, if any.
- Explain that the goal of the media is to sell fear and hype and that clients should not put too much importance on what the media has to say.
- Report why market corrections happen and are needed.
- Discuss why maintaining a certain level of risk in a portfolio is important to achieve long-term goals.
- Caution clients to avoid making decisions based on emotions or fear.
- Restate the firm's long-term investment strategy.
- Remind clients that it is important to invest over the long term and not make decisions based on short-term blips in the market.
- Discuss your strategy on how the firm mitigates downside risk.