Broker Check

Comparing Independent Advisors and Wirehouse Advisors

| May 12, 2018
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When deciding how to begin investing, you have lots of different options. The two most popular ways to invest are to hire the services of a wirehouse or a local, independent advisor.

What Wirehouses Do for Investors

For the more investment-centric investor, wirehouses are popular. Wirehouses are broker-dealers that range in size from smaller regional branches to much larger, international brokerages. The term “wirehouse” came about because these firms were connected to each branch primarily through telegraph and telephone wires, which enabled each location to obtain access to the same market information and allow all brokers to provide similar market news and quotes to their clients.

Full service brokerages offer a wide variety of financial services to their clients, like retirement planning, tax advice, research and investment opportunities. The big four national firms—Morgan Stanley Smith Barney, UBS, Wells Fargo, and Merrill Lynch (Bank of America)—operate on a fee, transactional or commission basis, depending on the type and volume of trades and other transactions.

Services Offered by Independent Brokers

Independent brokers offer services similar to full service brokerages. the primary difference is these advisors are independent contractors, not company employees. This provides them the freedom to service their clients however they choose, to utilize a fee structure that better suits the clients’ needs, and to provide more personalized service. (For related reading, see: More Advisors Are Going Independent, With No Regrets.)

How the Two Types of Investment Professionals Differ

Despite both offering similar services, the differences between wirehouses and independent advisors are quite staggering. In wirehouses, all advisors are employees of the firm that employs them, while independent brokers are, essentially, business owners who have control over every aspect of their business. From office location and business structure to organizational culture and beyond, independent advisors are not forced to fit into a particular firm’s mold.

Another difference is wirehouses all utilize the same largely proprietary products and cross-sell services from other departments within the company. Conversely, independent advisors offer products better suited for their clients because these brokers have greater freedom and wider access to different products and services. In this sense, independent advisors are better able to meet each of their client’s individual needs. Independent brokers also have greater freedom in choosing their clients, whereas wirehouses often seek high net worth clients (HNWIs) and ignore the average investor. 

Independent advisors are better able to focus specifically on their clients. There are significantly fewer conflicts of interests than with larger firms, where brokers must balance fulfilling clients’ needs and wants while adhering to company policies. 

High Touch vs. Low Touch Service

Independent brokers provide more “high touch” service, relying more on human involvement to guide customers’ choices. Thus, there are more personalized discussions and meetings, and these types of brokers can—and oftentimes do—meet with their clients and their families in the clients’ homes.

This practice is quite different from “low touch”, less personalized service common to larger brokerages. This is not to say that larger wirehouses do not interact with their clients, but there may be greater familiarity and personalization with independent advisors because they are not restricted by a set business model and specific rules and regulations.

Find the Right Investment Partner for You

How you begin investing is a personal decision. In addition to the services of a wirehouse or a local, independent advisor, there are other ways to invest, including full-service wirehouse brokerages (Morgan Stanley, Smith Barney, and Merrill Lynch), regional firms (Ameriprise Financial), boutique firms (Deutsche Bank and Barclay’s), multi-family offices, discount brokerages and independent broker dealers. But if a highly personalized, easily accessible, high-touch relationship is what you seek, the independent broker dealer advisor may be the best decision for you.

Todd Wilhoit contributes articles for Investopedia.com. See this one and more here.
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