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Finance: What is an Agency Relationship? 202 Views


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Description:

What is an Agency Relationship? An agency relationship allows an agent to act on behalf of the individual or company who hires them. This type of relationship is common in the financial world because individuals who hire financial advisors or fund managers to handle their finances are essentially creating agency relationships.

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English Language

Transcript

00:00

Finance a la Shmoop! What is an agency relationship? Alright well this

00:07

one could have come straight out of Hollywood.

00:09

Because in finance land, no relation to Disneyland, the same kind of client agent

00:15

thing exists. I'll deal with a lot less than ten

00:18

percent per transaction commissions. That's usually standard in the old

00:22

Hollywood. Well you are granny gold digger, you're 97 year old husband, just[people at funeral]

00:27

died. Leaving you at 43 a wealthy woman. You meet with your stockbroker, now

00:33

turned private wealth manager, handsomey mic handsome and assess the

00:38

relationship here. Well handsomey, has a fiduciary

00:42

obligation to you, to act on your best behalf. He is effectively an extension of

00:48

you. He is your agent, in the same way your right hand is your agent when your

00:53

back itches. He must be open about his fee structure.

00:57

Like a common agency arrangement these days, has the client paying 1% of the[pile of money in mansion]

01:02

assets under management with the agent. Whether the agent does a ton of work for

01:07

the client like tons of trading, or whether he does a whole lot of nothing.

01:12

Well the dicey conversations here then revolve around whether that agent

01:17

encouraged his client, to put money in the very high, free hedge and private

01:22

equity funds run by the agents firm. And then, well you know, you could ask does

01:27

the agent then get a spife, or tip, or free trip for him and his family to[man on vacation]

01:32

Hawaii at the end of the year? Hmm does that happen? Could that happen?

01:36

Agency relationship. All right well the basic idea here is that an agent must

01:40

act in the best interests of the client no matter what. Even if the advice the

01:46

agent is giving the client is directly opposite, the best personal interests of

01:51

that agent. Like getting a lot of commission and that free trip to Hawaii.

01:54

And yeah that is the only relationship we want to have with an agent.[three people in office]

02:00

Sorry there.

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