A wire house is a large financial institution with multiple branches connected electronically to share information. Banks and brokerage firms are wire houses, but the rise of online discount brokers has challenged their dominance. The future of wire houses is uncertain due to the changing economic climate.
A wire house is a large financial institution that has multiple branches that can communicate with each other electronically. The “wire” in the wire house refers to the electronic communication system that connects the different locations. Originally, wire houses communicated by telephone, but now they communicate via computer systems. Metal 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 wire house bank customer can access your account information at any bank branch because the branches are connected electronically and can share 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 metal houses because their branches are all connected electronically. The electronic communication system is used to communicate client trades and to access account information.
A broker who is employed by a wire house brokerage firm is called 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, while wire house brokers typically only trade the products of the chain house that employs them. Traditionally, wire house brokers have been considered among the top ranks of financial advisors. The 2008-2009 economic downturn, however, tarnished the image of the big metal houses and the brokers who work there.
Since the advent of the Internet, the advantage that the big banks and brokerage houses once enjoyed has faded. Individual investors can now access up-to-the-minute financial information and prices and execute trades through online discount brokers. As large brokerage firms charge fairly significant fees to manage an investor’s account or trade, online discount brokers have become more attractive, especially to small investors.
Due to the changing economic climate following the 2008-2009 recession, the future of big metal houses is unclear. Both clients and brokers moved their alliances from wire houses to independent brokers, and took their money with them. It remains to be seen whether the big metal houses will be able to adapt to this trend in the economy and maintain their dominance in the investment and wealth management spheres.
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