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.
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.
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