carpenter cartoon

Having a Carpenter Instead of a General Contractor

February 22, 2017

The Difference

The difference between a carpenter and a general contractor is clear to most people. A carpenter is a craftsperson – a person who is responsible for carrying out the physical tasks required to build a structure. A contractor is an overseer – a person who is responsible for making sure that the craftspeople are working well individually and as a unit. In construction, both roles are important, but each is clearly distinguished from the other.

In the Financial World

In the investment management industry, the distinction between the “craftspeople” and the “contractors” often gets muddled. Investment managers are often given the role of physically carrying out investment tasks and at the same time overseeing their own work. Moreover, different managers responsible for different portions of a person’s net worth do not work as a cohesive unit.

The Solution for Wealthy Families

Many families manage their finances in a way that is analogous to them building a house with only craftspeople and no professional oversight. General contractors, project managers, architects, designers – all these roles are absent in the building of their financial estate. Their investment managers have insufficient oversight and are disconnected from one another.

These families would be better served if they had an advisor who would monitor the performance of individual investment managers to make sure each manager is performing according to their mandate and in a way which complements the others. In situations where a manager does not perform as expected, this advisor could recognize the situation and guide the client in a better direction.

This is one of the Six Most Common Investment Mistakes taken from Mo Lidsky's book, In Search of the Prime Quadrant.