What is an 'Agent'

An agent is any person who has been legally empowered to act on behalf of another person. Agents are employed to represent their client in negotiations or dealings with third parties.

BREAKING DOWN 'Agent'

The agent-client relationship may be legally enforced if the terms of the contract have been disclosed, and the agent has an obligation to perform specific services. Agents cannot enter into other contracts which would create a conflict of interest with their outstanding contractual obligations.

Types of Agents

Two common types of agents are attorneys, who represent their clients legally, and stockbrokers, who are hired by investors to make investment decisions relating to the stock market. The person represented by the agent in these scenarios is called the principal. In finance, it refers to a fiduciary relationship, in which an agent is authorized to perform transactions on behalf of their client. Legally, there are three broad classes of agents:

  • Universal agents: universal agents have a broad mandate to act on behalf of their client. Often these agents have been given power of attorney for their client, which provides them with considerable representative power in their client's legal proceedings. Sometimes these kinds of agents are also authorized to make financial transactions on behalf of their clients.
  • General agents: agents who are contracted to represent their client for specific types of transactions or proceedings over an agreed-upon period.
  • Special agents: authorized to make a single transaction or series of transactions over a short time period.

Agent's Purpose

Individuals hire agents to perform tasks which they feel they do not have the time or expertise to perform themselves. Investors may hire a stockbroker to act as a middleman between them and the stock market, a common form of a financial agent/principal relationship. Hiring an agent to manage investments and provide advice can be advantageous; even if an individual investor is paying attention to their assets, they may still lack the expertise to act effectively on their own.

Athletes, actors and prospective homeowners may prefer to hire an agent to negotiate on their behalf because agents are typically more familiar with the industry and have a better idea of how to position their clients to negotiate favorable contracts. Another possible scenario is agency by necessity, which occurs if an individual is not in a position to make a time-sensitive decision. i.e., in a coma or incapacitated. Businesses often hire agents to represent them in a particular venture or negotiation.

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