Ever have this experience trying on new clothes? The “fashion consultant” raves over each new garment, saying things like:

“Ooh, I can’t believe how good that looks on you!” or: “Wow, I can’t decide which one I like better!”

If you’re like most of us, you probably appreciate the compliments and the personal attention. You also know some of the enthusiasm is because you’re a potential customer. So you take the comments with a grain of salt.

But suppose a salesperson said:

“You know, that style just doesn’t suit you. I think this one is a better fit.” What would you think?

The Reasons Why, and the Reasons Why Not

When it comes to assessing your relationship with the professionals that provide input and products for your financial transactions, one of the things you might want to evaluate is how well these people can explain the reasons not to do something, especially the things that they most often recommend or support.

Some examples:

A real estate professional who recommends buying an investment property probably knows all the benefits—the financial leverage of a down payment, potential for positive cash flow, market appreciation, deductible mortgage interest etc. Since a lot of people have made a fortune in real estate, and this opportunity seems to fit the template for success, what’s not to like?

But is there ever a reason not to buy investment property? What if you don’t have substantial savings set aside in an emergency fund? Is there a balance that should be kept between liquid and illiquid assets? Are there other market indicators that might caution against buying right now? Would any of those circumstances change your professional’s recommendation?

Similarly, a life insurance specialist may be very knowledgeable about whole life insurance as part of a program for individual financial protection and accumulation. Like the real estate agent who specializes in investment property, a good life insurance specialist knows all the ins and outs of working with a cash-value policy—the additional riders¹ (such as a disability waiver), the merits of loans or withdrawals², amounts that can purchase paid-up additions³ etc. And even though whole life insurance requires larger annual premiums, compared to term life, the specialist can effectively explain how the higher initial outlay delivers long-term benefits.

But there may be another side to the story. Can this insurance professional offer a reason not to buy whole life insurance? What if there’s an immediate need for more insurance protection than your budget can afford if the coverage is whole life? Why would someone buy term insurance instead?

From a consumer or client perspective, you want specialists and advisors who know both the reasons to buy, and the reasons not to. Because while common financial strategies and products have broad application and appeal, they may not be the right fit for your unique situation.

Ideally, competent financial professionals mention the reasons “not to” as part of their dialog with you. Either it comes in the course of “discovery” conversations about your objectives, current situation and financial philosophies, or it is part of the education when making a recommendation. But if the professional doesn’t bring up the “not to” reasons, be sure to ask. Getting an answer to the reasons “not to” is like getting a second opinion from the same doctor. It probably won’t change the proposal, but it should give you an even clearer understanding as to why the proposal was made in the first place.

Two Cautionary Thoughts on the Reasons Not To

1. Beware the critic. Getting a second opinion regarding a financial strategy may have merit. But be careful about someone with a narrow perspective or an ax to grind. Some people make a living out of telling others what not to do, and provide very little substance on what to do.

If you’ve had any exposure to the concept of life insurance, you soon pick up on the philosophical conflict between those who advocate term insurance and those who espouse the values of whole life or similar cash-value policies. In their little corner of the universe, the divide can be as passionate as that between Yankee and Red Sox fans, or “dog people” vs. “cat people,” and the respective sides can be quite dogmatic (and cat-matic?) about their positions.

Historically, both policy formats have a long track record in the marketplace. Regardless of what critics might say, it appears both types of life insurance have a legitimate place in individual programs. Someone with a one-sided perspective is obviously missing what many consumers find beneficial.

There may be specific reasons for you not to take on a real estate investment. But that doesn’t make all real estate a bad idea. And while some may voice a strong opinion about single-family residential properties over office buildings (or vice versa), the continuing buying and selling of real estate—of all kinds—should be an indicator of its potential for wealth building.

2. If you aren’t going to act on this idea, what are you going to do instead? Isaac Newton’s first law of mechanical motion is the Law of Inertia: A body in a state of rest tends to remain in such a state unless acted upon by an external force. The Law of Inertia has application to human psychology as well. Most of us tend to prefer stability and resist change.

When a financial professional challenges you with a new idea, it can be an external force that upsets your status quo. The easiest way to restore your psychological equilibrium is to find a way to dismiss the new idea or strategy. If you’re looking for a reason not to do something simply because you don’t want to (because you’re too busy, or bored, or want to spend the money on something more “fun”), you can always find a reason—a reason to wait, a reason to revisit the issue later, a reason to push the issue aside.

But before you lock in on your reason not to go forward, entertain one more thought: If a trusted advisor gave you the reasons not to, but still believes your situation is one where taking action would be the most beneficial, are you sure you want to blow it off?

Go back to the department store example. As you try on several outfits, the fashion consultant steers you away from several lesser choices. But after much review, there’s a moment where they say,

“Hey, that’s a perfect fit for you.”

Are you going to ignore that input?

Asking financial professionals for the reasons not to do something is a way to make their input even more valuable. But getting better advice and better understanding doesn’t mean much if you don’t act on it. The purpose of getting the reasons not to do something is to get a better idea of what to do. Don’t let not doing be your undoing.

Additional Notes

1. Riders may incur an additional premium or cost. Rider benefits may not be available in all states.
2. Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10 percent federal tax penalty
3. Paid-up Additions (PUA) are purchases of additional insurance (death benefit) that have a cash value. These purchases are made with dividends and/or a rider that allows the policyholder to pay an additional premium over and above the base premium. This creates the growth of death benefit and cash values in a participating whole life policy. Adding large amounts of paid-up additions may create a Modified Endowment Contract (MEC).

Submitted By Elozor Preil

 This article was prepared by an independent third party. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Avenue, 9 Fl., New York, NY 10017, 212-541-8800. Securities products/services and advisory services offered through PAS, a registered broker/dealer and investment adviser. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Wealth Advisory Group LLC is not an affiliate or subsidiary of PAS or Guardian.

PAS is a member FINRA, SIPC. Neither Guardian, PAS, Wealth Advisory Group, their affiliates/subsidiaries, nor their representatives render tax or legal advice. Please consult your own independent CPA/accountant/tax adviser and/or your attorney for advice concerning your particular circumstances.