Ferris, Baker Watts Inc., one of a vanishing breed of small independent brokerages in an industry dominated by Wall Street giants, has agreed to sell itself to Canada's largest bank, which will fold the firm into its Minneapolis-based money manager RBC Dain Rauscher Inc.
The deal with Royal Bank of Canada marks the end of local ownership for a firm that has survived two world wars, the Great Depression and countless boom-and-bust cycles while building a local reputation as a conservative place to invest money.
With Baltimore roots dating to 1900, Ferris outlasted a long list of other homegrown companies that have disappeared from the city's skyline, taking with them the prestige that comes with being a headquarters town. It was long anticipated that Ferris would join that list as industry consolidation made it increasingly difficult for small brokerages to compete.
The pressure to sell grew as a series of legal, regulatory and financial setbacks sapped the employee-owned firm of needed capital in recent years. The difficulties culminated with news last year that a former broker and client used the firm's trading desk in a stock manipulation scheme, spawning a costly federal investigation and civil lawsuits. The deal with Dain Rauscher was contingent on Ferris setting up a reserve to handle claims stemming from the incident.
John Taft, Dain Rauscher's chief executive, acknowledged that industry changes have made it tough for smaller firms such as Ferris to stay independent. Dain Rauscher's strategy is to maintain the best elements of a small "boutique" brokerage while drawing on the global financial resources of its corporate parent.
"The problem is that in this day and age, the technology requirements, product platform, training and support and educational requirements to be good at wealth management are too expensive for a small firm to support," he said.
Nothing will change for Ferris customers in the short term. The deal, which is expected to close mid-year, must first clear regulatory hurdles and win shareholder approval. It will be several months after closing before the Ferris name disappears from customer account statements. Investors will continue to deal with their same brokers.
Ferris will become the seventh geographic region in Dain Rauscher's U.S. portfolio, providing it a base for expansion into the Mid-Atlantic. Dain Rauscher has 5,000 employees and $154 billion in assets under administration to Ferris' 900 employees and $18.5 billion in assets under administration.
