Agent

What Is an Agent?

In finance, an agent is a party that acts for someone else under a grant of authority. The party that gives that authority is called the principal. The agent carries out tasks for the principal, such as buying or selling investments, handling paperwork, or making decisions within limits the principal sets.

For example, an investor may authorize a broker to buy shares on their behalf. The broker places the order and reports the result, but the investor remains the owner of the shares and bears the gains and losses from them.

Common Types of Financial Agents

• A broker executes trades for clients.
• A transfer agent keeps records of who owns a company's shares and handles transfers between owners.
• An insurance agent sells policies on behalf of an insurer.
• An agent bank administers a syndicated loan for a group of lenders, handling payments and communications among them.

Why the Agent Relationship Matters

Because an agent controls actions taken for someone else, the relationship depends on trust. Some agents owe a fiduciary duty, which requires them to put the principal's interests first. Others may be bound only by suitability or disclosure rules, and their obligations vary by role and jurisdiction. Knowing which standard applies to a given agent clarifies what that person is required to do.

The Principal-Agent Problem

The principal-agent problem arises when an agent's incentives differ from the principal's. A broker paid commissions, for instance, might favor trades that generate fees over those best suited to the client. Economists study this problem to understand how contracts, compensation design, monitoring, and disclosure rules can align interests, though no arrangement removes the issue entirely.