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Finance: What is an Agency Relationship? 202 Views

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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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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
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turned private wealth manager, handsomey mic handsome and assess the
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relationship here. Well handsomey, has a fiduciary
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obligation to you, to act on your best behalf. He is effectively an extension of
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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.
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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.
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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?
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Agency relationship. All right well the basic idea here is that an agent must
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act in the best interests of the client no matter what. Even if the advice the
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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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