Agency Problem

You know how child actors in the 1980s always ended up getting their money stolen by their parents or by some unscrupulous manager? That's the agency problem in a nutshell.

The issue revolves around whether the client can trust his/her agent to act in the best interest of their clients, especially when a conflict of interest comes up. Namely the kind of conflict that can be summed up as "it would be in my client's interest to keep this money, but it would be in my interest to invest it in this deal where I'm the founder and get paid more than handsomely if that risky deal does well." But it doesn't just affect the cast of Diff'rent Strokes. It comes up in all sorts of large and small ways any time a person is given financial sway over another.

A common and relatively benign version comes up when financial advisors try to sell you mutual funds from their company first, before offering similar products from competing firms. Most of these funds are likely interchangeable on a basic level, but it just goes to show: you can't trust anyone. For other definitions that get dark, see American Experience Table.