Wirehouse Broker

What Is a Wirehouse Broker?

A wirehouse broker is a non-independent broker working for a wirehouse firm, or a firm with multiple branches such as a national brokerage house. The four largest and most well-known wirehouse full-service brokerage firms today are Morgan Stanley, Bank of America’s Merrill Lynch, UBS, and Wells Fargo. A wirehouse is an archaic term used to describe a broker-dealer. Modern-day wirehouses can range from small regional brokerages to giant institutions with offices around the world.

The term "wirehouse" owes its origins to the fact that, prior to the advent of modern wireless communications, brokerage firms were connected to their branches primarily through telephone and telegraph wires. This enabled branches to have access to the same market information as the head office, thus allowing their brokers to provide stock quotes and market news to their clients.

A wirehouse broker is typically a full-service broker, offering research, investment advice, and order execution. By being affiliated with the wirehouse, the broker gains access to the firm's proprietary investment products, research, and technology.

Wirehouse Broker Explained

It was once thought that in order to provide top service to their clients, brokers had to be affiliated with a wirehouse firm. Independent brokers were often assumed to be sellers of prepackaged products and were viewed as second-class citizens in the financial world. Things have changed in this regard. However, as many of the big wirehouses experienced major shocks in the financial crisis of 2008.

Wirehouses and the Financial Crisis

The global financial crisis led to unprecedented turmoil among wirehouses, primarily because of the very substantial exposure that many of them had to mortgage-backed securities. While a number of the smaller players were forced to close shop, some of the most prominent names in the industry (such as Merrill Lynch and Bear Stearns) were either acquired by bigger banks or disappeared altogether into bankruptcy (Lehman Brothers). These events served to level the playing field as wirehouse brokers looked for new options upon leaving the failed firms.

Most present-day wirehouses are full-service brokerages that provide the complete range of services to clients, from investment banking and research, to trading and wealth management. Although the proliferation of discount brokerages and online quotes has eroded the edge in market information that the wirehouses formerly possessed, their diversified activities in capital markets continue to make them very profitable entities.

Nevertheless, in recent years, a number of wirehouse brokers have moved to independent broker-dealers. According to research by InvestmentNews, the three largest U.S. independent broker-dealers — LPL Financial, Ameriprise Financial Inc. and Raymond James Financial Inc. — recruited 118 teams from the wirehouses in 2017, up 42% from a year earlier, when those same three firms gained 83 teams, according to data.