What is a wirehouse broker?
A wirehouse broker is a non-independent broker who works for a wirehouse company or a business with numerous branches. Nowadays, UBS, Wells Fargo, Merrill Lynch, a division of Bank of America, and Morgan Stanley are the four most significant and well-known wirehouse full-service brokerage companies. A broker-dealer used to be called a “wirehouse,” an outdated phrase. These days, wirehouses come in different shapes and sizes, from massive organizations with global operations to small regional brokerages.
Before the invention of contemporary wireless communications, brokerage companies were generally linked to their branches via telephone and telegraph wires, where the word “wirehouse” started. This enabled branches to have the same market data as the main office, enabling their brokers to provide their customers with access to stock quotations and market updates.
Typically, a wirehouse broker provides research, investment advice, and order execution as part of their full-service offering. The broker can access the wirehouse’s exclusive investment products, analysis, and technology by affiliation.
Wirehouse Broker Explained
It was believed brokers needed to be associated with a wirehouse business to provide their customers with the best possible service. In finance, independent brokers were considered second-class individuals and considered salespeople of prefabricated goods. In this sense, things have changed. However, the 2008 financial crisis severely impacted a number of the large wirehouses.
Finance Crises and Wirehouses
Because of their significant exposure to mortgage-backed assets, several wirehouses experienced extraordinary turbulence due to the global financial crisis. Some of the biggest names in the business, including Merrill Lynch and Bear Stearns, were either taken over by larger banks or completely vanished into bankruptcy (Lehman Brothers). In contrast, many smaller businesses were forced to close. As wirehouse brokers searched for new opportunities after leaving the failing firms, these occurrences helped level the playing field.
These days, most wirehouses are full-service brokerages that provide their customers with every service under the sun, from trading and wealth management to investment banking and research. Despite losing their competitive advantage in market knowledge due to the rise of cheap brokerages and internet quotations, wirehouses are nonetheless very successful businesses because of their diverse capital markets operations.
However, some wirehouse brokers have switched to independent broker-dealers in recent years. The three most prominent separate broker-dealers in the United States, LPL Financial, Ameriprise Financial Inc., and Raymond James Financial Inc., reportedly hired 118 teams from wirehouses in 2017, up 42% from the previous year when those same firms added 83 teams per InvestmentNews data.
