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A wire house is a financial institution with electronically connected branches that share information. Banks and major brokerage firms are wire houses. Wire brokers work for these firms, but the rise of online discount brokers has challenged their dominance. The future of wire houses is uncertain.
A wire house is a large financial institution that has multiple branches that are able to communicate electronically with each other. The ‘wire’ in the wire house refers to the electronic communication system that connects the different locations. Originally, wire houses were communicated by telephone, but now they communicate through computer systems. Wire houses use this electronic communication system to share research, pricing, and other important financial information about their customers and accounts.
Banks are wire houses, because they connect their branches electronically. A bank branch bank customer can access their account information at any bank branch because the branches are electronically connected and can share information. The term is now more commonly used to refer to major brokerage firms such as Smith Barney, Merrill Lynch and others. They are considered wire houses because their branches are all electronically connected. The electronic reporting system is used to communicate customer transactions and access account information.
A broker who is employed by a wire brokerage firm is called a wire broker to distinguish him from an independent broker. An independent broker may trade the products of several different brokerage firms, while wire house brokers typically only trade the products of the wire house that employs them. Traditionally, wire brokerages have been considered one of the upper echelons of financial advisors. The economic crisis of 2008 – 2009, however, tarnished the image of the big wire houses and the brokers who work there.
Since the advent of the Internet, the advantage that large banks and brokerages once enjoyed has disappeared. Individual investors can now access up-to-date financial information and prices and trade through online discount brokers. As the big brokers charge reasonable fees to manage an investor’s account or make trades, online discount brokers have become more attractive, especially for small investors.
Due to the changing economic climate resulting from the 2008-2009 recession, the future of large wire houses is unclear. Both clients and brokers switched their loyalties from wire houses to independent brokerages and took their money with them. It remains to be seen whether the big wire houses will be able to adapt to this trend in the economy and maintain their dominant position in the investment and wealth management sphere.
Asset Smart.
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