This one coulda come straight outta Hollywood. Because in FinanceLand, the same kind of client-agent thing exists...albeit with a lot less than 10 percent per transaction commissions usually as standard.
You are Granny Golddigger. Your 97-year-old husband just died, leaving you, at 43, a wealthy woman. You meet with your stockbroker, now turned private wealth manager, Handsomy McHandsome, and assess the, uh...relationship here.
Well, Handsomy has a fiduciary obligation to you to act on your best behalf. He is effectively an extension of you. He is your agent in the same way your right hand is your agent when your back has an itch.
He must be open about his fee structure. Like…a common agency arrangement these days has the client paying 1% of the assets under management with the agent, whether the agent does a ton of work for the client, or whether he does a whole lot of nothing.
The dicey conversations then revolve around whether that agent encouraged his client to put money in the very high-fee hedge and private equity funds run by the agent’s firm…and then, uh…does the agent get a spiff or tip or free trip for him and his family to Hawaii at the end of the year?
The basic idea here is that an agent must act in the best interests of their client no matter what…even if the advice the agent is giving the client is directly opposite the best personal interests of that agent.
And yeah…that is the only relationship you want to have with an agent.
Related or Semi-related Video
Finance: What does it mean to have fiduc...51 Views
Finance a la Shmoop! What does it mean to have fiduciary obligation? Alright well
fiduciary refers to the responsible person, who has oversight, above a given
financial transaction, or process. That is, it is the fiduciary obligation, of the
head of a corporation's Audit Committee, to be certain that the
accounting process is handled fairly, objectively, inclusively and thoroughly [boss overseeing worker]
and there are a few other ly's in there, but well you get the gist. Doesn't it
seem strange, that some companies just seem to get into the same kind of
trouble again and again. Remember the BP oil spill, well it wasn't the first time
they'd had, an accident. You know, if you can call that spill only an accident.
What kind of oversight did they have? Any? Well some companies just have a [man carrying oil barrel
corporate culture that's run by the notion, that well, whatever isn't caught
as a crime, is legal. Lots of Wall Street stock brokerages came and went this
way. Yah, remember the Wolf of Wall Street? Kind of like that. Well what is
the obligation of a responsible party when faced with ethical dilemmas? Where
does the obligation start and stop? Should fiduciaries be held to a higher
personal standard than normal people? Yah, kind of the, you know, Harvey
Weinstein effect there. Yes, No, maybe, alright. Right, all three times. [question ABCD chart]
It's definitely yes, no, or maybe.
Up Next
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 r...