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A wire house is a large financial institution that has multiple branches that are able to communicate electronically with one another. The ‘wire’ in wire house refers to the electronic communication system that connects the different locations. Originally, wire houses communicated by telephone, but they now communicate via computer systems. Wire houses use this electronic communication system to share research, prices and other important financial information about their customers and accounts.
Banks are wire houses, because they connect their branches electronically. A customer of a wire house bank can access his account information at any branch of the bank because the branches are connected electronically and can share the information. The term is now more commonly used to refer to large brokerage houses, such as Smith Barney, Merrill Lynch and others. They are considered to be wire houses because their branches are all linked electronically. The electronic communication system is used to communicate customers’ trades and to access account information.
A broker who is employed by a wire house brokerage firm is referred to as a wire house broker, to distinguish him from an independent broker. An independent broker may trade the products of a number of different brokerage firms, whereas wire house brokers typically trade only the products of the wire house that employs them. Traditionally, wire house brokers have been perceived to be among the upper echelon of financial advisors. The economic downturn of 2008 – 2009, however, has tarnished the image of the large wire houses and the brokers who work there.
Since the advent of the Internet, the advantage that large banks and brokerage houses once enjoyed has evaporated. Individual investors can now access up-to-the-minute financial information and prices and execute trades through discount online brokers. Because the large brokerage firms charge fairly significant fees to manage an investor’s account or to make trades, the online discount brokers have become more attractive, especially for small investors.
Because of the changing economic climate as a result of the recession of 2008 – 2009, the future of the large wire houses is unclear. Customers and brokers alike have switched their allegiances from wire houses to independent broker-dealers, and have taken their money with them. It remains to be seen whether the large wire houses will be able to adapt to this trend in the economy and maintain their dominant position in the sphere of investing and wealth management.