UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2020~~2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-13913

WADDELL & REED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		51-0261715
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

6300 Lamar Avenue

Overland Park, Kansas 66202

(Address, including zip code, of Registrant’s principal executive offices)

(913) 236-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $.01 par value	WDR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:


Class		Outstanding as of ~~October~~April 23, ~~2020~~2021
Class A common stock, $.01 par value		62,~~547~~024,~~588~~785

Table of Contents

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended ~~September~~March 3031, ~~2020~~2021

			Page No.

Part I.	Financial Information

Item 1.		Financial Statements (unaudited)

		Consolidated Balance Sheets at ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020	3

		Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020	4

		Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020	5

		Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interests for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020	6

		Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020	7

		Notes to the Unaudited Consolidated Financial Statements	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4134

Item 4.		Controls and Procedures	4134

Part II.	Other Information

Item 1A.		Risk Factors	4235

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4335

Item 6.		Exhibits	4436

		Signatures	4537

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)


	~~September~~March 3031,
	~~2020~~2021		December 31,
	(Unaudited)		~~2019~~2020
Assets:
Cash and cash equivalents	$	~~165~~193,~~259~~864	~~151~~273,~~815~~756
Cash and cash equivalents - restricted		6162,~~933~~460	7463,~~325~~594
Investment securities		~~579~~452,~~344~~059	~~688~~486,~~346~~765
Receivables:
Funds and separate accounts		13,~~050~~995	1514,~~167~~837
Customers and other		5746,~~781~~151	8068,~~089~~466
Prepaid expenses and other current assets		3531,~~946~~341	3136,~~655~~318
Total current assets		~~913~~799,~~313~~870	1943,~~041,397~~736

Property and equipment, net		2719,~~213~~073	3421,~~726~~903
Goodwill and identifiable intangible assets		145,869	145,869
Deferred income taxes		1522,~~676~~089	1419,~~418~~200
Other non-current assets		2321,~~359~~288	2923,~~918~~123
Total assets	$	1,~~125~~008,~~430~~189	1,~~266~~153,~~328~~831

Liabilities:
Accounts payable	$	17,~~509~~780	2018,~~123~~330
Payable to investment companies for securities		1721,~~443~~678	3630,~~883~~514
Payable to third party brokers		1620,~~559~~941	1716,~~123~~316
Payable to customers		8170,~~265~~890	8482,~~558~~165
Short-term notes payable		~~94,980~~—	—94,997
Accrued compensation		6584,~~896~~748	79101,~~507~~749
Other current liabilities		56,~~515~~824	7152,~~001~~476
Total current liabilities		~~350~~272,~~167~~861	~~309~~396,~~195~~547

Long-term debt		—	94,926
Accrued pension and postretirement costs		447	446
Accrued pension and postretirement costs		579	3,145
Other non-current liabilities		25,507	29,081
Other non-current liabilities		27,173	30,960
Total liabilities		298,815	426,074
Total liabilities		377,919	438,226

Redeemable noncontrolling interests		—	19,205

Stockholders’ equity:
Preferred stock—$1.00 par value: 5,000 shares authorized; none issued		—	—
Class A Common stock—$0.01 par value: 250,000 shares authorized; 99,701 shares issued; 62,548 shares outstanding (68,847 at December 31, 2019)		997	997
Class A Common stock—$0.01 par value: 250,000 shares authorized; 99,701 shares issued; 62,043 shares outstanding (62,398 at December 31, 2020)		997	997
Additional paid-in capital		~~296~~309,~~220~~294	~~312~~303,~~693~~757
Retained earnings		1,~~270~~234,~~678~~154	1,~~241~~248,~~598~~299
Cost of 37,153 common shares in treasury (30,854 at December 31, 2019)		(824,309)	(749,625)
Cost of 37,658 common shares in treasury (37,303 at December 31, 2020)		(837,096)	(828,193)
Accumulated other comprehensive income		32,~~925~~025	32,~~234~~897
Total stockholders’ equity		~~747~~709,~~511~~374	~~808~~727,~~897~~757

Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	1,125,430	1,266,328
Total liabilities and stockholders’ equity	$	1,008,189	1,153,831

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited, in thousands, except for per share data)

For the three months ended ~~September~~March 3031,

~~For the nine months ended September 30,~~

~~2020~~2021

~~2019~~2020

~~2020~~

~~2019~~

Revenues:

Investment management fees

~~106~~118,~~617~~016

~~111~~105,~~806~~219

~~307,660~~

~~334,438~~

Underwriting and distribution fees

~~139~~154,~~456~~795

~~135~~136,~~787~~943

~~400,032~~

~~395,527~~

Shareholder service fees

2122,~~597~~540

2321,~~087~~571

~~63,745~~

~~70,279~~

Total

~~267~~295,~~670~~351

~~270~~263,~~680~~733

~~771,437~~

~~800,244~~

Operating expenses:

Distribution

~~122~~136,~~195~~692

~~117~~120,~~425~~033

~~350,104~~

~~343,696~~

Compensation and benefits (including share-based compensation of $11,080, $11,580, $33,595, and $35,471 respectively)

62,416

64,999

182,704

191,718

Compensation and benefits (including share-based compensation of $12,112 and $9,983, respectively)

100,498

58,425

General and administrative

1930,~~156~~290

1618,~~680~~598

~~58,278~~

~~47,421~~

Technology

1417,~~250~~384

1513,~~019~~502

~~41,989~~

~~47,769~~

Occupancy

42,~~160~~283

54,~~684~~709

~~13,160~~

~~19,100~~

Marketing and advertising

~~1,370~~301

21,~~134~~896

~~4,385~~

~~6,497~~

Depreciation

2,~~998~~396

43,~~833~~513

~~9,720~~

~~16,062~~

Subadvisory fees

3,~~490~~447

3,~~882~~666

~~10,444~~

~~11,154~~

Total

~~230~~293,~~035~~291

~~230~~224,~~656~~342

~~670,784~~

~~683,417~~

Operating income

372,~~635~~060

4039,~~024~~391

~~100,653~~

~~116,827~~

Investment and other income

5,449

5,212

12,852

23,690

Investment and other income (loss)

1,808

(7,745)

Interest expense

(~~1,542~~431)

(1,~~562~~549)

~~(4,630)~~

~~(4,662)~~

Income before provision for income taxes

413,~~542~~437

4330,~~674~~097

~~108,875~~

~~135,855~~

Provision for income taxes

101,~~296~~825

109,~~175~~633

~~29,341~~

~~35,036~~

Net income

311,~~246~~612

3320,~~499~~464

~~79,534~~

~~100,819~~

Net income attributable to redeemable noncontrolling interests

723

445

2,201

1,763

Net loss attributable to redeemable noncontrolling interests

—

(1,522)

Net income attributable to Waddell & Reed Financial, Inc.

301,~~523~~612

3321,~~054~~986

~~77,333~~

~~99,056~~

Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted:

0.4803

0.4632

~~1.18~~

~~1.33~~

Weighted average shares outstanding, basic and diluted:

6462,~~240~~485

7267,~~387~~675

~~65,795~~

~~74,446~~

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)


	For the three months ended ~~September~~March 3031,				~~For the nine months ended September 30,~~
	~~2020~~2021		~~2019~~2020		~~2020~~		~~2019~~

Net income	$	311,~~246~~612		3320,~~499~~464	$	~~79,534~~		~~100,819~~

Other comprehensive (loss) income:
Other comprehensive income:

Unrealized (loss) gain on available for sale investment securities during the period, net of income tax (benefit) expense of $(161), $92, $274 and $1,011, respectively		(511)		296		842		3,235
Unrealized loss on available for sale investment securities during the period, net of income tax benefit of $(274) and $(760), respectively		(861)		(2,430)

Postretirement benefit, net of income tax benefit of $(16), $(30), $(50) and $(88), respectively		(51)		(94)		(151)		(283)
Postretirement benefit, net of income tax benefit of $(4) and $(18), respectively		(11)		(49)

Comprehensive income		~~30,684~~740		3317,~~701~~985		~~80,225~~		~~103,771~~
Comprehensive income attributable to redeemable noncontrolling interests		723		445		2,201		1,763
Comprehensive loss attributable to redeemable noncontrolling interests		—		(1,522)
Comprehensive income attributable to Waddell & Reed Financial, Inc.	$	~~29,961~~740		3319,~~256~~507	$	~~78,024~~		~~102,008~~

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interests

(Unaudited, in thousands)


	For the three months ended ~~September~~March 3031,
							Accumulated		Redeemable
				Additional			Other	Total	Non
	Common Stock			Paid-In	Retained	Treasury	Comprehensive	Stockholders’	Controlling
	Shares	Amount		Capital	Earnings	Stock	Income (Loss)	Equity	Interests
Balance at June 30, 2019	99,701	$	997	294,487	1,227,314	(669,223)	3,081	856,656	15,115
Balance at December 31, 2019	99,701	$	997	312,693	1,241,598	(749,625)	3,234	808,897	19,205
Net income	—		—	—	33,054	—	—	33,054	445
Net income (loss)	—		—	—	21,986	—	—	21,986	(1,522)
Net subscription of redeemable noncontrolling interests in sponsored funds	—		—	—	—	—	—	—	1,~~353~~387
Recognition of equity compensation	—		—	87,~~024~~693	5771	—	—	87,~~081~~764	—
Net issuance/forfeiture of nonvested shares	—		—	~~627~~(37,985)	—	~~(627)~~37,985	—	—	—
Dividends accrued, $0.25 per share	—		—	—	(1716,~~748~~571)	—	—	(1716,~~748~~571)	—
Repurchase of common stock	—		—	—	—	(4053,~~715~~939)	—	(4053,~~715~~939)	—
Other comprehensive income	—		—	—	—	—	202	202	—
Other comprehensive loss	—		—	—	—	—	(2,479)	(2,479)	—
Balance at September 30, 2019	99,701	$	997	303,138	1,242,677	(710,565)	3,283	839,530	16,913
Balance at March 31, 2020	99,701	$	997	282,401	1,247,084	(765,579)	755	765,658	19,070



Balance at June 30, 2020	99,701	$	997	289,439	1,255,770	(783,990)	4,487	766,703	25,857
Balance at December 31, 2020	99,701	$	997	303,757	1,248,299	(828,193)	2,897	727,757	—
Net income	—		—	—	301,~~523~~612	—	—	301,~~523~~612	~~723~~—
Net deconsolidation of redeemable noncontrolling interests in sponsored funds	—		—	—	—	—	—	—	(26,580)
Recognition of equity compensation	—		—	5,491	4	—	—	5,495	—
Recognition of equity compensation	—		—	6,514	20	—	—	6,534	—
Net issuance/forfeiture of nonvested shares	—		—	46	—	(46)	—	—	—
Net issuance/forfeiture of nonvested shares	—		—	267	—	(267)	—	—	—
Dividends accrued, $0.25 per share	—		—	—	(15,761)	—	—	(15,761)	—
Dividends accrued, $0.25 per share	—		—	—	(15,635)	—	—	(15,635)	—
Repurchase of common stock	—		—	—	—	(8,857)	—	(8,857)	—
Repurchase of common stock	—		—	—	—	(40,052)	—	(40,052)	—
Other comprehensive loss	—		—	—	—	—	(872)	(872)	—
Other comprehensive loss	—		—	—	—	—	(562)	(562)	—
Balance at March 31, 2021	99,701	$	997	309,294	1,234,154	(837,096)	2,025	709,374	—
Balance at September 30, 2020	99,701	$	997	296,220	1,270,678	(824,309)	3,925	747,511	—


	For the nine months ended September 30,
							Accumulated		Redeemable
				Additional			Other	Total	Non
	Common Stock			Paid-In	Retained	Treasury	Comprehensive	Stockholders’	Controlling
	Shares	Amount		Capital	Earnings	Stock	Income (Loss)	Equity	interest
Balance at December 31, 2018	99,701	$	997	311,264	1,198,445	(627,587)	331	883,450	11,463
Net income	—		—	—	99,056	—	—	99,056	1,763
Net subscription of redeemable noncontrolling interests in sponsored funds	—		—	—	—	—	—	—	3,687
Recognition of equity compensation	—		—	25,573	297	—	—	25,870	—
Net issuance/forfeiture of nonvested shares	—		—	(33,699)	—	33,699	—	—	—
Dividends accrued, $0.75 per share	—		—	—	(55,121)	—	—	(55,121)	—
Repurchase of common stock	—		—	—	—	(116,677)	—	(116,677)	—
Other comprehensive income	—		—	—	—	—	2,952	2,952	—
Balance at September 30, 2019	99,701	$	997	303,138	1,242,677	(710,565)	3,283	839,530	16,913



Balance at December 31, 2019	99,701	$	997	312,693	1,241,598	(749,625)	3,234	808,897	19,205
Net income	—		—	—	77,333	—	—	77,333	2,201
Net deconsolidation of redeemable noncontrolling interests in sponsored funds	—		—	—	—	—	—	—	(21,406)
Recognition of equity compensation	—		—	20,895	110	—	—	21,005	—
Net issuance/forfeiture of nonvested shares	—		—	(37,368)		37,368	—	—	—
Dividends accrued, $0.75 per share	—		—	—	(48,363)	—	—	(48,363)	—
Repurchase of common stock	—		—	—	—	(112,052)	—	(112,052)	—
Other comprehensive income	—		—	—	—	—	691	691	—
Balance at September 30, 2020	99,701	$	997	296,220	1,270,678	(824,309)	3,925	747,511	—

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	For the ~~nine~~three months ended ~~September~~March 3031,
	~~2020~~2021		~~2019~~2020

Cash flows from operating activities:
Net income	$	791,~~534~~612		~~100~~20,~~819~~464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		92,~~368~~660		163,~~057~~168
Amortization of deferred sales commissions		1,180		1,492
Write-down of impaired assets		282		—
Share-based compensation		33,595		35,471
Amortization of deferred sales commissions		259		395
Investments and derivatives loss (gain), net of collateral		1,688		(15,250)
Share-based compensation		12,112		9,983
Net purchases, maturities, and sales of trading and equity securities		22,468		(47,641)
Investments and derivatives (gain) loss, net of collateral		(1,991)		50,012
Deferred income taxes		(1,480)		4,622
Net purchases, maturities, and sales of trading and equity securities		9,297		(2,144)
Net change in equity securities and trading debt securities held by consolidated sponsored funds		(10,886)		16,697
Deferred income taxes		(2,612)		(12,071)
Other		(1,096)		1,273
Net change in equity securities and trading debt securities held by consolidated sponsored funds		—		1,326
Other		171		212
Changes in assets and liabilities:
Customer and other receivables		318,~~801~~090		706,~~220~~804
Payable to investment companies for securities and payable to customers		(2220,~~733~~111)		(~~105~~29,~~953~~763)
Receivables from funds and separate accounts		~~2,117~~842		3,~~360~~023
Other assets		42,~~064~~619		143,~~784~~214
Accounts payable and payable to third party brokers		(62,~~383)~~630		(103,~~243~~219)
Other liabilities		(2320,~~265~~328)		(122,~~477~~128)
Net cash provided by operating activities	$	915,~~972~~532		8429,~~231~~276

Cash flows from investing activities:
Purchases of available for sale and equity method securities		~~(28,286)~~—		(~~149~~2,~~835~~999)
Proceeds from sales of available for sale and equity method securities		3,257		19,667
Proceeds from maturities of available for sale securities		32,941		33,875
Proceeds from maturities of available for sale securities		96,420		116,197
Additions to property and equipment		(71)		(3,182)
Proceeds from sale of property and equipment		2,262		—
Net cash provided by investing activities	$	32,870		27,694
Additions to property and equipment		(7,445)		(4,189)
Net cash provided by (used in) investing activities	$	66,208		(18,160)

Cash flows from financing activities:
Dividends paid		(4915,~~939~~555)		(5617,~~560~~119)
Repurchase of common stock		(~~112~~8,~~865~~857)		(~~118~~53,~~668~~599)
Net subscriptions (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds		5,807		3,687
Repayment of short-term debt, net of debt issuance costs		(94,997)		—
Other		(131)		(168)
Net subscriptions (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds		—		1,387
Net cash used in financing activities	$	(157,128)		(171,709)
Other		(19)		(40)
Net cash used in financing activities	$	(119,428)		(69,371)

Net increase (decrease) in cash, cash equivalents and restricted cash		1,052		(105,638)
Net decrease in cash and cash equivalents		(81,026)		(12,401)
Cash, cash equivalents, and restricted cash at beginning of period		~~226~~337,~~140~~350		~~291~~226,~~555~~140
Cash, cash equivalents, and restricted cash at end of period	$	~~227~~256,~~192~~324		~~185~~213,~~917~~739

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business and Significant Accounting Policies

Waddell & Reed Financial, Inc. and Subsidiaries

Waddell & Reed Financial, Inc. (hereinafter referred to as the “Company,” “we,” “our” or “us”) is a holding company, incorporated in the state of Delaware in 1981, that conducts business through its subsidiaries. Founded in 1937, we are one of the oldest mutual fund complexes in the United States, having introduced the former Waddell & Reed Advisors group of mutual funds (the “Advisors Funds”) in 1940. Over time, we added additional mutual funds: Ivy Funds (the “Ivy Funds”); Ivy Variable Insurance Portfolios, our variable product offering (“Ivy VIP”); InvestEd Portfolios, our 529 college savings plan (“InvestEd”); and the Ivy High Income Opportunities Fund, a closed-end mutual fund (“IVH”) (collectively, Ivy Funds, Ivy VIP, InvestEd and IVH are referred to as the “Funds”). In addition to the Funds, our assets under management (“AUM”) include institutional managed accounts. As of ~~September~~March 3031, ~~2020~~2021, we had $6776.90 billion in AUM.

We derive our revenues from providing investment management and advisory services, investment product underwriting and distribution, and shareholder services administration to the Funds and institutional accounts. We also provide wealth management services, primarily to retail clients through Waddell & Reed, Inc. (“W&R”), and independent financial advisors associated with W&R (“Advisors”), who provide financial planning and advice to their clients. Investment management and advisory fees and certain underwriting and distribution revenues are based on the level of AUM and assets under administration (“AUA”) and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Our underwriting and distribution revenues consist of fees earned on fee-based advisory programs, asset-based service and distribution fees promulgated under Rule 12b-1 of the Investment Company Act of 1940 (“Rule 12b-1”), distribution fees on certain variable products, and commissions derived from sales of investment and insurance products. The products sold have various commission structures and the revenues received from those sales vary based on the type and dollar amount sold. Shareholder service fee revenue includes transfer agency fees, custodian fees from retirement plan accounts, portfolio accounting and administration fees, and is earned based on client AUM or number of client accounts. Our major expenses are for distribution of our products, compensation related costs, occupancy, general and administrative, and information technology.

The Company continues to proactively manage business continuity and safety considerations as circumstances of the coronavirus disease 2019 (“COVID-19”) evolve. Our leadership team’s priority is on ensuring the health and safety of all employees, clients, Advisors and communities, while also ensuring full continuity of service and access. The Company started transitioning to a work from home environment early in March 2020 and has been following the Centers for Disease Control and Prevention and local authorities’ recommendations on safe practices throughout this process. We have undertaken a number of steps to facilitate safety, security and full continuity of service, including:

●

Our Enterprise Preparedness Team and COVID-19 steering committee continue to meet regularly to assess developments and determine the best action to ensure business continuity and the safety of our employees and partners.

●

We have adopted interim business practices, including restricting business travel, requiring meetings to take place via remote access tools, adopting safety protocols to limit the potential for exposure, adopting social distancing practices, implementing a clearly-defined approval process for reentry to any worksite, advising personnel on preventive measures and offering remote collaboration and productivity tools and training resources to our employees.

●

We enhanced monitoring and capabilities of our systems to allow our remote workforce to function efficiently and have continued our educational and monitoring practices to ensure there are no compromises to confidentiality, privacy and cybersecurity requirements.

●

The Ivy investment management and distribution teams transitioned seamlessly to remote working. Our teams have a strong heritage of active collaboration which has migrated to a virtual environment without compromise.

Table of Contents

● Within our wealth management business, ~~the~~approximately ~~majority~~25% of Advisors are working from temporary locations. We are demonstrating our differentiated service and support model by continuing regular communications with Advisors as well as delivering additional advisor and client focused resources.

● We have not initiated any layoffs, furloughs or reduced hours due to COVID-19. As we implemented our business continuity plans, we have intentionally maintained the same pay practices for all of our employees based upon their regular work schedule, paid spot bonuses to certain employees, implemented a temporary hourly wage increase to designated client services personnel, increased certain benefit coverages for specific COVID-19 related treatments ~~through December~~ and ~~increased~~made ~~our~~targeted philanthropic contributions to local organizations to help support the COVID-19 responses in our community.

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented. The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (our “~~2019~~2020 Form 10-K”). Certain amounts in the prior year’s financial statements have been reclassified for consistent presentation. Derivative activity was reclassified within operating activities on our consolidated statements of cash flows to provide a comprehensive view of the impact of the economic hedge program for our seed investment portfolio.

The accompanying unaudited consolidated financial statements are prepared consistent with the accounting policies described in Note 1 to the consolidated financial statements included in our ~~2019~~2020 Form 10-K with the exception of the adoption of Accounting Standards Update (“ASU”) ~~2016~~2019-1312, ~~Measurement~~Income ofTaxes ~~Credit~~(Topic ~~Losses on Financial Instruments, ASU 2017-04, Intangibles-Goodwill and Other~~740): Simplifying the ~~Test for Goodwill Impairment and ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s~~ Accounting for ~~Implementation~~Income ~~Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~Taxes, ~~all of~~ which became effective January 1, ~~2020~~2021.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at ~~September~~March 3031, ~~2020~~2021 and the results of operations and cash flows for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2021 and ~~2019~~2020 in conformity with accounting principles generally accepted in the United States.

~~Assets~~Proposed ~~Held~~Acquisition ~~for~~of ~~Sale~~Waddell & Reed Financial, Inc. by Macquarie

~~Assets~~On ~~held~~December ~~for~~2, ~~sale~~2020, ~~included~~the ~~real~~Company ~~property~~announced ~~related~~a tomerger ~~our~~agreement ~~corporate~~with ~~headquarters~~Macquarie ~~move~~Asset ~~and~~Management, ~~aviation~~the ~~equipment~~asset management division of Macquarie Group. ~~The~~Subject ~~nine~~to ~~months~~the ~~ended~~terms ~~September~~and ~~30,~~conditions ~~2020~~of ~~included~~the ~~asset~~Agreement ~~impairment~~and ~~charges~~Plan of ~~$0.9~~Merger ~~million~~(the on“Merger ~~assets~~Agreement”) ~~held~~by ~~for~~and ~~sale~~among the Company, ~~which~~Macquarie ~~were~~Management ~~recorded~~Holdings, inInc. ~~general~~(“Macquarie”), ~~and~~Merry ~~administrative~~Merger ~~expenses~~Sub, inInc. ~~our~~(“Merger ~~consolidated~~Sub”) ~~statements~~and of(solely ~~income.~~for ~~During~~limited ~~the~~purposes) ~~third~~Macquarie ~~quarter~~Financial ofHoldings ~~2020~~Pty Ltd, ~~the~~Merger ~~aviation~~Sub ~~equipment~~will ~~was~~be ~~sold. As~~merged ofwith ~~September~~and ~~30,~~into ~~2020~~the Company (the “merger”), ~~$3.8~~with ~~million~~the ofCompany ~~buildings~~surviving ~~and~~the ~~$1.9~~merger ~~million~~as a wholly owned subsidiary of ~~land~~Macquarie. Pursuant ~~that~~to ~~were~~the ~~held~~Merger ~~for~~Agreement, ~~sale~~at ~~were~~the ~~included~~effective intime ~~Property~~of ~~and~~the ~~equipment~~merger, ~~net~~each onshare ~~our~~of ~~consolidated~~the ~~balance~~Company’s ~~sheets. As~~Class ofA ~~December~~common ~~31,~~stock ~~2019,~~(“common ~~$3.1~~stock”) ~~million~~issued ofand ~~equipment,~~outstanding ~~$3.8~~immediately ~~million~~prior ofto ~~buildings~~the ~~and~~effective ~~$1.9~~time ~~million~~will ofbe ~~land~~converted ~~that~~into ~~were~~the ~~held~~right ~~for~~to ~~sale~~receive ~~were~~$25.00 ~~included~~per share in ~~Property~~cash, without interest and ~~equipment,~~subject ~~net~~to onany ~~our~~withholding ~~consolidated~~of ~~balance~~taxes ~~sheets. The~~required ~~Company~~by ~~intends~~applicable tolaw ~~actively~~in ~~pursue~~accordance with the ~~sale~~Merger Agreement. On completion of ~~remaining~~the ~~assets~~merger, ~~held~~Macquarie ~~for~~intends ~~sale~~to atsell ~~market~~our ~~prices~~wealth asmanagement ~~soon~~business asto ~~reasonably~~LPL ~~possible.~~Holdings, Inc.

The closing of the merger remains subject to the satisfaction or waiver of the remaining conditions to the merger set forth in the Merger Agreement. The Company expects the closing of the merger to occur on April 30, 2021.

Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

As of September 30, 2020, the Company had $5.3 million of capitalized implementation costs for hosting arrangements with $215 thousand of accumulated amortization in prepaid and other current assets on the consolidated balance sheet. Our hosting arrangements that are service contracts include internal and external costs related to various technology additions in support of our asset management and wealth management businesses. Amortization costs are recorded on a straight-line basis over the term of the hosting arrangement agreement.

Table of Contents

2.Assets ~~New~~Held ~~Accounting~~for ~~Guidance~~Sale

~~Accounting~~Assets ~~Guidance~~held ~~Not~~for ~~Yet~~sale ~~Adopted~~included real property and fractional aircraft ownership. The three months ended March 31, 2021 included asset impairment charges of $0.2 million on assets held for sale, which were recorded in general and administrative expenses in our consolidated statements of income. As of March 31, 2021, $3.8 million of buildings, $1.9 million of land and $1.0 million of equipment held for sale were included in Property and equipment, net on our consolidated balance sheets. As of December 31, 2020, $3.8 million of buildings and $1.9 million of land that were held for sale were included in Property and equipment, net on our consolidated balance sheets. The Company continues to actively pursue the sale of assets held for sale at market prices as soon as reasonably possible.

InImplementation ~~December~~Costs ~~2019,~~Incurred ~~the~~in ~~FASB~~a ~~issued~~Cloud ~~ASU~~Computing ~~2019-12,~~Arrangement ~~Income~~that Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies and improves the consistent application of the accounting for income taxes by removing certain exceptions to general principles and by clarifying and amending existing guidance. This ASU is ~~effective~~a ~~for~~Service fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We have concluded that the adoption of this ASU will have an immaterial impact on our consolidated financial statements and related disclosures.Contract

3As of March 31, 2021 and December 31, 2020, the Company had $4.8 ~~Revenue~~million ~~Recognition~~of capitalized implementation costs for hosting arrangements with $793 thousand and $459 thousand, respectively, of accumulated amortization in prepaid and other current assets on the consolidated balance sheets. Our hosting arrangements that are service contracts include internal and external costs related to various technology additions in support of our asset management and wealth management businesses. Amortization costs are recorded on a straight-line basis over the term of the hosting arrangement agreement.

~~All revenue recognized in the consolidated statements of income is considered to be revenue from contracts with customers~~2. ~~The~~New ~~vast~~Accounting majority of revenue is determined based on average assets and is earned daily or monthly or is transactional and is earned on the trade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel:Guidance



		Three months endedSeptember 30,		Nine months endedSeptember 30,
		2020	2019	2020	2019
		(in thousands)		(in thousands)
Investment management fees:
Funds	$	103,443	107,926	298,712	322,678
Institutional		3,174	3,880	8,948	11,760
Total investment management fees	$	106,617	111,806	307,660	334,438
Underwriting and distribution fees:
Unaffiliated
Service and distribution fees	$	14,623	16,286	43,569	49,366
Sales commissions		223	364	1,047	1,300
Other revenues		82	67	308	242
Total unaffiliated distribution fees	$	14,928	16,717	44,924	50,908
Wealth Management
Advisory fees	$	82,591	73,356	232,243	208,806
Service and distribution fees		15,305	16,143	43,494	47,589
Sales commissions		17,847	20,544	53,538	60,959
Other revenues		8,785	9,027	25,833	27,265
Total wealth management distribution fees		124,528	119,070	355,108	344,619
Total distribution fees	$	139,456	135,787	400,032	395,527
Shareholder service fees:
Total shareholder service fees	$	21,597	23,087	63,745	70,279

Total revenues	$	267,670	270,680	771,437	800,244

Accounting Guidance Adopted During the First Quarter of 2021

On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies and improves the consistent application of the accounting for income taxes by removing certain exceptions to general principles and by clarifying and amending existing guidance. The adoption of this ASU had an immaterial impact on our consolidated financial statements and related disclosures.

Table of Contents

43. ~~Investment~~Revenue ~~Securities~~Recognition

~~Investment~~All ~~securities~~revenue atrecognized ~~September~~in ~~30,~~the ~~2020~~consolidated statements of income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and ~~December~~is 31earned daily or monthly or is transactional and is earned on the trade date. As such, ~~2019~~revenue ~~were~~from asremaining ~~follows~~performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel:


	~~September 30,~~		~~December 31,~~
	~~2020~~	Three months endedMarch 31,	~~2019~~
		~~(in thousands)~~2021	2020
Available for sale securities:
		(in thousands)
Commercial paper	$	9,714	1,977
Investment management fees:
Corporate bonds		180,203	254,291
Funds	$	114,395	102,293
Total available for sale securities		189,917	256,268
Institutional		3,621	2,926
Trading debt securities:
Total investment management fees	$	118,016	105,219
Commercial paper		18,774	1,977
Underwriting and distribution fees:
Corporate bonds		70,984	84,920
Unaffiliated
U.S. Treasury bills		—	5,979
Service and distribution fees	$	14,642	15,276
Mortgage-backed securities		1	4
Sales commissions		15	451
Term loans		44,994	44,268
Other revenues		44	135
Consolidated sponsored funds		—	43,567
Total unaffiliated distribution fees	$	14,701	15,862
Total trading securities		134,753	180,715
Wealth Management
Equity securities:
Advisory fees	$	94,280	77,118
Common stock		34,206	34,945
Service and distribution fees		16,763	14,589
Sponsored funds		149,857	178,386
Sales commissions		19,423	20,657
Sponsored privately offered funds		924	845
Other revenues		9,628	8,717
Total equity securities		184,987	214,176
Total wealth management distribution fees		140,094	121,081
Equity method securities:
Total underwriting and distribution fees	$	154,795	136,943
Sponsored funds		69,687	37,187
Shareholder service fees:
Total securities	$	579,344	688,346
Total shareholder service fees	$	22,540	21,571

Total revenues	$	295,351	263,733

~~Commercial paper and corporate bonds accounted for as available for sale and held as of September 30, 2020 mature as follows:~~11


		Amortized
		cost	Fair value
		(in thousands)
Within one year	$	64,321	65,057
After one year but within five years		121,170	124,860
	$	185,491	189,917

Table of Contents

Commercial paper, corporate bonds, mortgage-backed securities and term loans accounted for as trading and held as of September 30, 2020 mature as follows:


		Fair value
		(in thousands)
Within one year	$	29,580
After one year but within five years		83,508
After five years but within 10 years		21,665
	$	134,753

4.	Investment Securities

11Investment securities at March 31, 2021 and December 31, 2020 were as follows:

Table of Contents


	March 31,		December 31,
	2021		2020

		(in thousands)
Available for sale securities:
Commercial paper	$	—	9,705
Corporate bonds		133,652	157,832
Total available for sale securities		133,652	167,537
Trading debt securities:
Commercial paper		14,079	11,785
Corporate bonds		70,427	76,734
Mortgage-backed securities		—	1
Term loans		48,077	47,224
Total trading securities		132,583	135,744
Equity securities:
Common stock		42,323	41,410
Sponsored funds		82,323	81,019
Sponsored privately offered funds		1,224	1,165
Total equity securities		125,870	123,594
Equity method securities:
Sponsored funds		59,954	59,890
Total securities	$	452,059	486,765

Corporate bonds accounted for as available for sale and held as of March 31, 2021 mature as follows:

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at September 30, 2020:


		Amortized
		cost	Fair value

		(in thousands)
Within one year	$	74,726	75,746
After one year but within five years		56,513	57,906
	$	131,239	133,652


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Commercial paper	$	9,720	3	(9)	9,714
Corporate bonds		175,771	4,432	—	180,203
	$	185,491	4,435	(9)	189,917

Commercial paper, corporate bonds and term loans accounted for as trading and held as of March 31, 2021 mature as follows:

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2019:


		Fair value
		(in thousands)
Within one year	$	38,039
After one year but within five years		68,227
After five years but within 10 years		26,317
	$	132,583


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value
	(in thousands)
Available for sale securities:
Commercial paper	$	1,976	1	—	1,977
Corporate bonds		250,982	3,314	(5)	254,291
	$	252,958	3,315	(5)	256,268

The following is a summary of the gross unrealized gains related to securities classified as available for sale at March 31, 2021:

A summary of available for sale investment securities with fair values below carrying values at September 30, 2020 is as follows:


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value

	(in thousands)
Available for sale securities:
Corporate bonds	$	131,239	2,413	—	133,652

Less than 12 months

12 months or longer

Total

Unrealized

Fair value

losses

Fair value

losses

Fair value

losses

(in thousands)

Commercial paper

2,420

(9)

—

2,420

(9)

ATable ~~summary~~ of ~~available for sale investment securities with fair values below carrying values at December 31, 2019 is as follows:~~Contents

Less than 12 months

12 months or longer

Total

Unrealized

Fair value

losses

Fair value

losses

Fair value

losses

(in thousands)

Corporate bonds

4,538

—

8,056

(5)

12,594

(5)

The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2020:

The Company’s investment portfolio included one available for sale security in an unrealized loss position at September 30, 2020.


	Amortized		Unrealized	Unrealized
	cost		gains	losses	Fair value

	(in thousands)
Available for sale securities:
Commercial paper	$	9,720	—	(15)	9,705
Corporate bonds		154,270	3,562	—	157,832
	$	163,990	3,562	(15)	167,537

~~The~~There ~~Company~~are ~~evaluated~~no available for sale investment securities inwith anfair ~~unrealized~~values ~~loss~~below ~~position~~carrying values at ~~September~~March 3031, ~~2020, including reviewing credit ratings, assessing the extent of losses, and considering the impact of market conditions for each individual security~~2021. ~~The~~A ~~Company~~summary ~~concluded~~of noavailable ~~allowance~~ for ~~credit~~sale ~~losses was necessary as it expects to recover the entire amortized cost basis of each security. The unrealized losses in the Company’s~~ investment ~~portfolio~~securities ~~were~~with ~~primarily~~fair ~~caused~~values bybelow ~~changes~~carrying invalues ~~interest~~at ~~rates. At~~December ~~this time~~31, ~~the~~2020 ~~Company~~is ~~does~~as ~~not intend to sell, and does not believe it will be required to sell these securities before recovery of their amortized cost.~~follows:

For equity securities held at the end of the period, net unrealized gains of $7.3 million and net unrealized losses of $0.2 million were recognized for the three months ended September 30, 2020 and September 30, 2019, respectively and net unrealized losses of $0.5 million and net unrealized gains of $17.9 million were recognized for the nine months ended September 30, 2020 and September 30, 2019, respectively.

Less than 12 months

12 months or longer

Total

Unrealized

Fair value

losses

Fair value

losses

Fair value

losses

(in thousands)

Corporate bonds

2,414

(15)

—

2,414

(15)

~~Table~~The Company’s investment portfolio included no available for sale securities in an unrealized loss position at March 31, 2021. The Company’s evaluation of ~~Contents~~available for sale securities in an unrealized loss position includes reviewing credit ratings, assessing the extent of losses, and considering the impact of market conditions for each individual security.

For equity securities held at the end of the period, net unrealized gains of $2.6 million and net unrealized losses of $35.9 million were recognized for the three months ended March 31, 2021 and March 31, 2020, respectively.

Sponsored Funds

The Company has classified its equity investments in the Funds as equity method investments (when the Company owns between 20% and 50% of the fund) or equity securities measured at fair value through net income (when the Company owns less than 20% of the fund). These entities do not meet the criteria of a variable interest entity (“VIE”) and are considered to be voting interest entities (“VOE”). The Company has determined the Funds are VOEs because the structure of the investment products is such that the voting rights held by the equity holders provide for equality among equity investors.

Sponsored Privately Offered Funds

The Company holds an interest in a privately offered fund structured in the form of a limited liability company. The members of this entity have the substantive ability to remove the Company as managing member or dissolve the entity upon a simple majority vote. This entity does not meet the criteria of a VIE and is considered to be a VOE.

Consolidated Sponsored Funds

The following table details the balances related to consolidated sponsored funds at September 30, 2020 and December 31, 2019, as well as the Company’s net interest in these funds:


	September 30,		December 31,
	2020		2019
	(in thousands)
Cash	$	—	1,530
Investments		—	43,567
Other assets		—	483
Other liabilities		—	—
Redeemable noncontrolling interests		—	(19,205)
Net interest in consolidated sponsored funds	$	—	26,375

During the third quarter of 2020, we deconsolidated one Ivy Fund in which we had provided initial seed capital at the time of the fund’s formation due to no longer having a controlling financial interest in the fund.

Fair Value

Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset. An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation. The three-level hierarchy of inputs is summarized as follows:

●

Level 1 – Investments are valued using quoted prices in active markets for identical securities.

●

Level 2 – Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities.

● Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.

Table of Contents

●

Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.

Assets classified as Level 2 can have a variety of observable inputs. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short time between purchase and expected maturity of the investments. Depending on the nature of the inputs, these investments are generally classified as Level 1 or 2 within the fair value hierarchy. U.S. Treasury bills are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer. Term loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Term loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors.

The following tables summarize our investment securities as of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.


September 30, 2020	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
March 31, 2021	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
	(in thousands)
Cash equivalents: (1)
Money market funds	$	4520,~~007~~062	—	—	—	4520,~~007~~062
Commercial paper		—	2325,~~316~~801	—	—	2325,~~316~~801
Total cash equivalents	$	4520,~~007~~062	2325,~~316~~801	—	—	6845,~~323~~863
Available for sale securities:
Commercial paper	$	—	9,714	—	—	9,714
Corporate bonds	$	—	133,652	—	—	133,652
Corporate bonds	$	—	180,203	—	—	180,203
Trading debt securities:
Commercial paper		—	1814,~~774~~079	—	—	1814,~~774~~079
Corporate bonds		—	70,~~984~~427	—		70,~~984~~427
Mortgage-backed securities		—	1	—	—	1
Term loans		—	46,355	1,722	—	48,077
Term loans		—	43,288	1,706	—	44,994
Equity securities:
Common stock		3442,~~206~~018	—	—305	—	3442,~~206~~323
Sponsored funds		~~149~~82,~~857~~323	—	—	—	~~149~~82,~~857~~323
Sponsored privately offered funds measured at net asset value (2)		—	—	—	~~924~~1,224	~~924~~1,224
Equity method securities: (3)
Sponsored funds		6959,~~687~~954	—	—	—	6959,~~687~~954
Total investment securities	$	~~253~~184,~~750~~295	~~322~~264,~~964~~513	12,~~706~~027	~~924~~1,224	~~579~~452,~~344~~059

Table of Contents


December 31, 2019	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
December 31, 2020	Level 1		Level 2	Level 3	Other Assets Held at Net Asset Value	Total
	(in thousands)
Cash equivalents: (1)
Money market funds	$	482,~~203~~085	—	—	—	482,~~203~~085
Commercial paper		—	3847,~~143~~421	—	—	3847,~~143~~421
Total cash equivalents	$	482,~~203~~085	3847,~~143~~421	—	—	42129,~~346~~506
Available for sale securities:
Commercial paper	$	—	19,~~977~~705	—	—	19,~~977~~705
Corporate bonds		—	~~254~~157,~~291~~832	—	—	~~254~~157,~~291~~832
Trading debt securities:
Commercial paper		—	111,~~977~~785	—	—	111,~~977~~785
Corporate bonds		—	8476,~~920~~734	—		8476,~~920~~734
U.S. Treasury bills		—	5,979	—	—	5,979
Mortgage-backed securities		—	1	—	—	1
Mortgage-backed securities		—	4	—	—	4
Term loans		—	46,030	1,194	—	47,224
Term loans		—	40,368	3,900	—	44,268
Consolidated sponsored funds		—	43,567	—	—	43,567
Equity securities:
Common stock		3441,~~942~~079	—	3331	—	3441,~~945~~410
Sponsored funds		~~178~~81,~~386~~019	—	—	—	~~178~~81,~~386~~019
Sponsored privately offered funds measured at net asset value (2)		—	—	—	~~845~~1,165	~~845~~1,165
Equity method securities: (3)
Sponsored funds		3759,~~187~~890	—	—	—	3759,~~187~~890
Total investment securities	$	~~250~~181,~~515~~988	~~433~~302,~~083~~087	31,~~903~~525	~~845~~1,165	~~688~~486,~~346~~765

(1)

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at net asset value and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization and are classified as Level 2.

(2)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

(3)	The Company’s equity method investments are investment companies that record their underlying investments at fair value.

Table of Contents

The following table summarizes the activity of investments categorized as Level 3 for the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021:


	~~For the nine months ended~~
	~~September~~For ~~30,~~the ~~2020~~three months ended
	March 31, 2021
	(in thousands)
Level 3 assets at December 31, 2019	$	3,903
Level 3 assets at December 31, 2020	$	1,525
Additions		6,501
Transfers into level 3		4,863
Transfers in to level 3		11,086
Transfers out of level 3		(4,293)
Transfers out of level 3		(15,622)
Gains in Investment and other income (loss)		33
Losses in Investment and other income		(1,026)
Redemptions and paydowns		(101)
Redemptions/Paydowns		(3,136)
Level 3 assets at March 31, 2021	$	2,027
Level 3 assets at September 30, 2020	$	1,706

Change in unrealized losses for Level 3 assets held at September 30, 2020	$	(9)
Change in unrealized losses for Level 3 assets held at March 31, 2021	$	(26)

5.	Derivative Financial Instruments

The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds. Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives. We do not hedge for speculative purposes.

The Company was party to 10nine total return swap contracts with a combined notional value of $~~271~~205.21 million and 1410 total return swap contracts with a combined notional value of $~~228~~198.2 million as of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020, respectively. These derivative financial instruments are not designated as hedges for accounting purposes. Changes in fair value of the total return swap contracts are recognized in Investment and other income (loss) in the Company’s consolidated statements of income.

The counterparties of the total return swap contracts posted $31.24 million in cash collateral with the Company as of ~~September~~March 3031, ~~2020~~2021, which is included in accounts payable in the Company’s consolidated balance sheet. The Company posted $3.74 million in cash collateral with the counterparties of the total return swap contracts as of December 31, ~~2019~~2020, which is included in customers and other receivables in the Company’s consolidated balance sheet. The Company does not record its fair value in derivative transactions against the posted collateral.

The following table presents the fair value of the derivative financial instruments as of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020 and is calculated based on Level 2 inputs:


			~~September~~March 3031,		December 31,
	Balance sheet		~~2020~~2021		~~2019~~2020
	location	Fair value		Fair value
		(in thousands)
Total return swap contracts	Prepaid expenses and other current assets	$	~~2,017~~529		—
Total return swap contracts	Other current liabilities	$	—26		3,~~990~~464
Net total return swap asset (liability)		$	~~2,017~~503		(3,~~990~~464)

The following is a summary of net (losses) gains recognized in income for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020:


		Three months ended				~~Nine months ended~~
	Income statement	~~September~~March 3031,				~~September 30,~~
	location		~~2020~~2021	~~2019~~	2020		~~2020~~	~~2019~~
		(in thousands)				~~(in thousands)~~
Total return swap contracts	Investment and other income	$	(144,~~191~~080)	~~135~~	42,069	$	~~(2,571)~~	~~(25,728)~~

Table of Contents

6.	Goodwill and Identifiable Intangible Assets

Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Our goodwill is not deductible for tax purposes. The Company performs an annual goodwill impairment assessment during the second quarter of each year and identified no impairment during the ~~current~~most ~~year’s~~recent assessment. Goodwill and identifiable intangible assets (all considered indefinite lived) at ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:


	~~September~~March 3031,		December 31,
	~~2020~~2021		~~2019~~2020
	(in thousands)
Goodwill	$	106,970	106,970

Mutual fund management advisory contracts		38,699	38,699
Other		200	200
Total identifiable intangible assets		38,899	38,899

Total	$	145,869	145,869

7.	Indebtedness

~~Debt~~During ~~is reported at its carrying amount in~~ the ~~consolidated~~first ~~balance~~quarter ~~sheets. The~~of ~~fair value~~2021, ~~calculated based on Level 2 inputs, of~~ the Company’s repaid our senior unsecured notes ~~maturing~~that matured January 13, 2021 ~~was $96~~.2 ~~million at September 30, 2020 compared to the carrying value net of debt issuance costs of $95.0 million, which is listed under short-term notes payable in the consolidated balance sheet.~~

On October 20, 2020, we entered into a 364-day unsecured revolving credit facility (the “New Credit Facility”) with various lenders, which initially provides for borrowings of up to $100.0 million and may be expanded to $200.0 million. The New Credit Facility replaced the prior credit facility, which was set to terminate in October 2020. The covenants in the New Credit Facility are consistent with the covenants in the prior credit facility, including the required consolidated leverage ratio and the consolidated interest coverage ratio.

8.	Income Tax Uncertainties

In the accompanying consolidated balance sheets, unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities; unrecognized tax benefits that are expected to be settled within the next 12 months are included in ~~other~~income ~~current~~taxes ~~liabilities~~payable; unrecognized tax benefits that reduce a net operating loss, similar tax loss, or tax credit carryforward are presented as a reduction to non-current deferred income taxes. As of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020, the Company’s consolidated balance sheets included unrecognized tax benefits, including penalties and interest, of $2.10 million ($1.87 million net of federal benefit) and $21.09 million ($1.7 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate.

In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. The Company does not expect the resolution or settlement of any open audits, federal or state, to materially impact the consolidated financial statements.

Our 2016-2019 federal income tax returns are open tax years that remain subject to potential future audit. Our state income tax returns for all years after 2015 and, in certain states, income tax returns for 2015, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.

17Our 2017-2020 federal income tax returns are open tax years that remain subject to potential future audit. Our state income tax returns for all years after 2016 and, in certain states, income tax returns for 2016, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.

Table of Contents

9. Pension Plan and Postretirement Benefits Other Than Pension

Benefits payable under our noncontributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”) were based on employees’ years of service and compensation during the final 10 years of employment. On July 26, 2017, the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) approved an amendment to freeze the Pension Plan, effective September 30, 2017. After September 30, 2017, participants in the Pension Plan ceased accruing additional benefits for future service or compensation. Participants retained benefits accumulated as of September 30, 2017 in accordance with the terms of the Pension Plan. The Compensation Committee approved the termination of the Pension Plan, effective June 1, 2019. The Company is currently performing the administrative actions required to terminate the Pension Plan in a standard termination, as defined by the Pension Benefit Guaranty Corporation.17

In connection with the termination of the Pension Plan, in July 2020, the Company contributed $3.7 million dollars to the Pension Plan. Payments were made in July 2020 from the Pension Plan to participants, beneficiaries and alternate payees that elected to receive a lump sum distribution and to the selected annuity provider that has assumed the liabilities of the Pension Plan. As part of the assumption of Pension Plan liabilities by the annuity provider, the Company relieved the pension liability on its balance sheet and recorded settlement losses in the amount of $1.3 million during the third quarter of 2020.

We also sponsor an unfunded defined benefit postretirement medical plan that previously covered substantially all employees, as well as Advisors. The medical plan is contributory with participant contributions adjusted annually. The medical plan does not provide for benefits after age 65 with the exception of a small group of employees that were grandfathered when this plan was established. During the third quarter of 2016, the Company amended this plan to discontinue the availability of coverage for any individuals who retire after December 31, 2016.

The components of net periodic pension costs and other postretirement costs related to these plans are reflected in the table below. Net periodic pension costs are recorded in investment and other income on the Company’s consolidated statements of income.


				Other						Other
	Pension Benefits			Postretirement Benefits			Pension Benefits			Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,		Nine months ended September 30,				Nine months ended September 30,
	2020		2019		2020	2019	2020		2019		2020	2019
		(in thousands)						(in thousands)
Components of net periodic benefit cost:
Interest cost	$	439	1,537	$	4	9	$	3,071	4,610	$	12	25
Expected return on plan assets		(374)	(1,579)		—	—		(2,618)	(4,736)		—	—
Actuarial gain amortization		—	—		(67)	(124)		—	—		(201)	(371)
Settlement loss		1,272	—		—	—		1,272	—		—	—
Total	$	1,337	(42)	$	(63)	(115)	$	1,725	(126)	$	(189)	(346)

Table of Contents

109. Stockholders’ Equity

Earnings per Share

The components of basic and diluted earnings per share were as follows:


	Three months ended			~~Nine months ended~~
	~~September~~March 3031,			~~September 30,~~
	~~2020~~2021		~~2019~~2020	~~2020~~		~~2019~~
	~~(in thousands, except per share amounts)~~
Net income attributable to Waddell & Reed Financial, Inc.	$	301,~~523~~612	3321,~~054~~986	$	~~77,333~~	~~99,056~~

Weighted average shares outstanding, basic and diluted		6462,~~240~~485	7267,~~387~~675		~~65,795~~	~~74,446~~

Earnings per share, basic and diluted	$	0.4803	0.4632	$	~~1.18~~	~~1.33~~

Dividends

During the quarter, the Board of Directors declared a quarterly dividend on our ~~Class A~~ common stock in the amount of $0.25 per share with aan ~~November~~April 230, ~~2020~~2021 payment date and an ~~October~~April 129, ~~2020~~2021 record date. The total dividend to be paid on ~~November 2~~April 30, 2021 ~~2020~~ is $15.68 million.

Common Stock Repurchases

The Board of Directors has authorized the repurchase of our ~~Class A~~ common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including issuing shares to employees in our stock-based compensation programs. The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares.

There were 2353,~~617,108~~909 shares and 23,~~480~~807,~~019~~438 shares repurchased in the open market or privately during the three months ended ~~September~~March 3031, ~~2020~~2021 and 2019, respectively, which includes 19 shares repurchased from employees who tendered shares to cover income tax withholdings with respect to vesting of stock awards during the three months ended September 30, 2019. There were 7,892,913 shares and 6,849,238 shares repurchased in the open market or privately during the nine months ended September 30, 2020 ~~and 2019~~, respectively, which includes ~~451~~353,~~245~~909 shares and ~~440~~231,~~002~~393 shares, respectively, repurchased from employees who tendered shares to cover income tax withholdings with respect to vesting of stock awards during these two reporting periods.

1918

Table of Contents

Accumulated Other Comprehensive Income

The following tables summarize accumulated other comprehensive income (loss) activity for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2020~~2021 and ~~September~~March 3031, ~~2019~~2020.


	~~For the three months ended September 30,~~
	For the three months ended March 31,			~~Total~~
	~~Unrealized~~		~~Postretirement~~	~~accumulated~~Total
	~~gains (losses) on~~Unrealized		~~benefits~~Postretirement	~~other~~accumulated
	~~AFS~~gains ~~investment~~(losses) on		~~unrealized~~benefits	~~comprehensive~~other
	~~securities~~AFS investment		~~gains (losses)~~unrealized	~~income (loss)~~comprehensive
	~~(in thousands)~~securities		gains (losses)	income (loss)
Balance at June 30, 2020	$	3,874	613	4,487
	(in thousands)
Other comprehensive loss before reclassification		(371)	—	(371)
Balance at December 31, 2020	$	2,696	201	2,897
Amount reclassified from accumulated other comprehensive income		(140)	(51)	(191)
Other comprehensive loss before reclassification		(700)	—	(700)
Net current period other comprehensive loss		(511)	(51)	(562)
Amount reclassified from accumulated other comprehensive income		(161)	(11)	(172)
Balance at September 30, 2020	$	3,363	562	3,925
Net current period other comprehensive loss		(861)	(11)	(872)

Balance at March 31, 2021	$	1,835	190	2,025

Balance at June 30, 2019	$	2,142	939	3,081
Balance at December 31, 2019	$	2,521	713	3,234
Other comprehensive income before reclassification		379	—	379
Other comprehensive loss before reclassification		(2,228)	—	(2,228)
Amount reclassified from accumulated other comprehensive income		(83202)	(9449)	(~~177~~251)
Net current period other comprehensive income (loss)		296	(94)	202
Net current period other comprehensive loss		(2,430)	(49)	(2,479)
Balance at September 30, 2019	$	2,438	845	3,283
Balance at March 31, 2020	$	91	664	755


	For the nine months ended September 30,
				Total
	Unrealized		Postretirement	accumulated
	gains (losses)		benefits	other
	on investment		unrealized	comprehensive
	securities		gains (losses)	income (loss)
	(in thousands)
Balance at December 31, 2019	$	2,521	713	3,234
Other comprehensive income before reclassification		1,344	—	1,344
Amount reclassified from accumulated other comprehensive income		(502)	(151)	(653)
Net current period other comprehensive income (loss)		842	(151)	691
Balance at September 30, 2020	$	3,363	562	3,925


Balance at December 31, 2018	$	(797)	1,128	331
Other comprehensive income before reclassification		3,413	—	3,413
Amount reclassified from accumulated other comprehensive income		(178)	(283)	(461)
Net current period other comprehensive income (loss)		3,235	(283)	2,952
Balance at September 30, 2019	$	2,438	845	3,283

Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow.


		For the three months ended March 31, 2021	~~Tax~~
For the three months ended September 30, 2020	Pre-tax		expense	Net of tax	Statement of income line item
			Tax
	~~(in thousands)~~Pre-tax		expense	Net of tax	Statement of income line item
Reclassifications included in net income:
	(in thousands)
Gains on available for sale debt securities	$	184	(44)	140	Investment and other income
Reclassifications included in net income:
Amortization of postretirement benefits		67	(16)	51	Compensation and benefits
Gains on available for sale debt securities	$	213	(52)	161	Investment and other income (loss)
Total	$	251	(60)	191
Amortization of postretirement benefits		15	(4)	11	Compensation and benefits
Total	$	228	(56)	172


	For the three months ended March 31, 2020
			Tax
	Pre-tax		expense	Net of tax	Statement of income line item

	(in thousands)
Reclassifications included in net income:
Gains on available for sale debt securities	$	266	(64)	202	Investment and other income (loss)
Amortization of postretirement benefits		67	(18)	49	Compensation and benefits
Total	$	333	(82)	251

Table of Contents

			Tax
For the three months ended September 30, 2019	Pre-tax		expense	Net of tax	Statement of income line item
	(in thousands)
Reclassifications included in net income:
Gains on available for sale debt securities	$	109	(26)	83	Investment and other income
Amortization of postretirement benefits	$	124	(30)	94	Compensation and benefits
Total	$	233	(56)	177

Table of Contents


			Tax
For the nine months ended September 30, 2020	Pre-tax		expense	Net of tax	Statement of income line item
	(in thousands)
Reclassifications included in net income:
Gains on available for sale debt securities	$	661	(159)	502	Investment and other income
Amortization of postretirement benefits		201	(50)	151	Compensation and benefits
Total	$	862	(209)	653



			Tax
For the nine months ended September 30, 2019	Pre-tax		expense	Net of tax	Statement of income line item
	(in thousands)
Reclassifications included in net income:
Gains on available for sale debt securities	$	234	(56)	178	Investment and other income
Amortization of postretirement benefits		371	(88)	283	Compensation and benefits
Total	$	605	(144)	461

10.

Leases

The Company has operating and finance leases for corporate office space and equipment. Our leases have remaining lease terms of less than one year to five years, some of which include options to extend leases for up to 20 years, and some of which include options to terminate the leases within one year. Certain leases include variable lease payments in future periods based on a market index or rate. We determine if an arrangement is a lease at inception (or the effective date of ASU 2016-02, Leases). Operating lease assets and liabilities are included in other non-current assets, other current liabilities, and other non-current liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, net, other current liabilities, and other non-current liabilities in our consolidated balance sheets.

11. Leases

The Company has operating and finance leases for corporate office space and equipment. Our leases have remaining lease terms of less than one year to six years, some of which include options to extend leases for up to 20 years, and some of which include options to terminate the leases within one year. Certain leases include variable lease payments in future periods based on a market index or rate. We determine if an arrangement is a lease at inception (or the effective date of ASU 2016-02, Leases). Operating lease assets and liabilities are included in other non-current assets, other current liabilities, and other non-current liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, net, other current liabilities, and other non-current liabilities in our consolidated balance sheets.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date (or the effective date of ASU 2016-02, Leases) based on the present value of lease payments over the lease term. The Company uses an incremental borrowing rate based on the information available at the commencement date (or the effective date of ASU 2016-02, Leases) in determining the present value of lease payments. The ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which we have elected not to separate.

During January 2020, we signed a fifteen-year lease, which wewas ~~expect~~expected to commence during 2022, relating to the development of a new 260,000 square foot ~~innovative, distinctive and sustainably-designed~~ corporate headquarters building in ~~the heart of~~ downtown Kansas City, Missouri. The lease will be recognized in the Company’s consolidated financial statements during the period that includes the lease’s commencement date. The impact that our proposed merger with Macquarie will have on our new corporate headquarters lease, including eligibility for state and local tax savings, has not been determined.

Table of Contents

The components of lease expense were as follows:


	For the three months ended March 31,
	2021		2020

	(in thousands)
Operating Lease Cost	$	1,478	$	3,233

Finance Lease Cost:
Amortization of ROU assets	$	14	$	55
Interest on lease liabilities		1		9
Total	$	15	$	64


	Three months ended September 30,
	2020		2019
	(in thousands)
Operating Lease Cost	$	2,903	$	4,189

Finance Lease Cost:
Amortization of ROU assets	$	42	$	80
Interest on lease liabilities		2		8
Total	$	44	$	88


	Nine months ended September 30,
	2020		2019
	(in thousands)
Operating Lease Cost	$	9,164	$	14,472

Finance Lease Cost:
Amortization of ROU assets	$	149	$	224
Interest on lease liabilities		15		23
Total	$	164	$	247

Supplemental cash flow information related to leases was as follows:


	~~Nine~~For the three months ended ~~September~~March 3031,
	~~2020~~2021		~~2019~~2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	91,~~106~~792	$	133,~~661~~143
Operating cash flows from finance leases		151		239
Financing cash flows from finance leases		~~185~~19		~~222~~58

ROU assets obtained in exchange for lease obligations:
Operating leases		~~665~~—		~~2,410~~7
Finance leases		10—		40—

2220

Table of Contents

Supplemental balance sheet information related to leases was as follows:


	~~September~~March 3031, ~~2020~~2021		December 31, ~~2019~~2020
	(in thousands, except lease term and discount rate)
Operating Leases:
Operating lease ROU assets (Other non-current assets)	$	1512,~~181~~124	$	2313,~~457~~461

Other current liabilities	$	75,~~403~~394	$	106,~~479~~247
Other non-current liabilities		97,~~632~~765		148,~~694~~812
Total operating lease liabilities	$	1713,~~035~~159	$	2515,~~173~~059


Finance Leases:
Property and equipment, gross	$	~~476~~181	$	~~985~~333
Accumulated depreciation		(~~391~~144)		(~~737~~277)
Property and equipment, net	$	8537	$	~~248~~56

Other current liabilities	$	6525	$	~~203~~41
Other non-current liabilities		138		5511
Total finance lease liabilities	$	7833	$	~~258~~52


Weighted average remaining lease term:
Operating leases		4 years		4 years
Finance leases		1 year		1 year

Weighted average discount rate:
Operating leases		4.0411%		4.3208%
Finance leases		6.00%		6.00%

Maturities of lease liabilities are as follows:


	Operating		Finance
	Leases		Leases
	(in thousands)
Year ended December 31,
2020 (excluding the nine months ended September 30, 2020)	$	2,413	28
2021 (excluding the three months ended March 31, 2021)	$	4,834	22
2021		6,669	44
2022		2,424	12
2022		2,563	10
2023		2,090	—
2023		2,122	—
2024		2,090	—
2024		2,090	—
Thereafter		2,613	—
Total lease payments		1814,~~470~~051	8234
Less imputed interest		(~~1,435~~892)	(41)
Total	$	1713,~~035~~159	7833

1211. Contingencies

The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

The Company establishes reserves for litigation and similar matters when those matters present material loss contingencies that management determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies.” These amounts are not reduced by amounts that may be recovered under insurance or claims against

2321

Table of Contents

third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Company regularly revises such accruals in light of new information. The Company discloses the nature of the contingency when management believes it is reasonably possible the outcome may be significant to the Company’s consolidated financial statements and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items that management believes should be disclosed. Management’s judgment is required related to contingent liabilities because the outcomes are difficult to predict.

Litigation Relating to the Merger — Seven complaints were filed by purported stockholders of the Company challenging the merger (the “Complaints”). The Complaints generally allege, among other things, that the Company and the Board of Directors authorized the filing of a materially incomplete and misleading proxy statement with the SEC. While the Company believes that the disclosures set forth in the proxy statement comply fully with applicable law, and vigorously denies any wrongdoing or liability with respect to the allegations and claims asserted, or which could have been asserted, in the Complaints, the Company voluntarily supplemented the proxy statement on March 15, 2021 with additional disclosures (the “Supplemental Disclosures”). The seven plaintiffs who filed suit have advised the Company that they intend to dismiss their claims in light of the Supplemental Disclosures, subject to plaintiffs’ right to seek a mootness fee payment and the Company’s right to oppose such a request. The Company believes that the Complaints are without merit, but is unable to predict the outcome of the ultimate resolution of the lawsuits or the potential loss, if any, that may result.

12.	Subsequent Events

24Investment Portfolio – During April 2021, the Company liquidated a portion of our investment portfolio. Net gains of $2.4 million were recognized from the sale of $211.4 million of securities during April 2021 as a result of the liquidation.

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements included elsewhere in this report. Unless otherwise indicated or the context otherwise requires all references to the “Company,” “we,” “our” or “is” refer to Waddell & Reed Financial, Inc. and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of AUM and AUA, distribution sources, expense levels, redemption rates, ~~stock~~our ~~repurchases~~proposed merger with Macquarie Management Holdings, Inc. (“Macquarie”), and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to the impact of the COVID-19 pandemic and related economic conditions, as well as the factors discussed below. If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020, which include, without limitation:

●

The loss of existing distribution relationships or inability to access new distribution relationships;

●

A reduction in our AUM on short notice, through increased redemptions in our distribution channels or our Funds, particularly those Funds with a high concentration of assets, or investors terminating their relationship with us or shifting their funds to other types of accounts with different rate structures;

●

The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body;

●

Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of evolving fiduciary standards;

●

The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes;

●

A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds;

●

Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our AUM or our business environment;

●

Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies;

●

Our inability to attract and retain senior executive management and other key personnel to conduct our business;

●

A failure in, or breach of, our operational or security systems or our technology infrastructure, or those of third parties on which we rely; and

●

Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner.

Table of Contents

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission (the “SEC”), including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10-K for the year ended December 31, 2019 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2020. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission (the “SEC”), including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10-K for the year ended December 31, 2020 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2021. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

Overview

We are one of the oldest mutual fund and asset management firms in the country, with expertise in a broad range of investment styles and across a variety of market environments. Our earnings and cash flows are heavily dependent on financial market conditions and client activity. Significant increases or decreases in the various securities markets can have a material impact on our results of operations, financial condition and cash flows.

Our products are distributed through our unaffiliated channel, or through our wealth management channel by Advisors. Through our institutional channel, we distribute an array of investment styles to a variety of clients.

Through our unaffiliated channel, we distribute mutual funds through broker-dealers, retirement platforms and registered investment advisers through a team of external and internal wholesalers.

In our wealth management channel, we had ~~921~~916 Advisors and ~~392~~382 licensed advisor associates as of ~~September~~March 3031, ~~2020~~2021, for a total of 1,~~313~~298 licensed individuals associated with W&R who operate out of offices located throughout the United States and provide financial advice for retirement, education funding, estate planning and other financial needs for clients.

We manage assets in a variety of investment styles in our institutional channel. Most of the clients in this channel are other asset managers that hire us to act as a subadviser for their branded products; they are typically domestic and foreign distributors of investment products who lack scale or the track record to manage internally, or choose to market multi-manager styles. Our diverse client list also includes pension funds, Taft Hartley plans and endowments.

~~Operating~~Proposed ~~Results~~Acquisition of Waddell & Reed Financial, Inc. by Macquarie

●For ~~Net~~information ~~income~~related ~~attributable~~ to ~~Waddell & Reed Financial, Inc. for~~ the ~~third~~proposed ~~quarter~~merger ofwith ~~2020 was $30.5 million~~Macquarie, orplease ~~$0.48~~see ~~per~~Part ~~diluted~~I ~~share,~~– ~~compared~~Item ~~to $33.~~1 ~~million,~~– or“Financial ~~$0.46~~Statements ~~per diluted share~~(unaudited), ~~during~~Note ~~the third quarter of 2019. The third quarter of 2019 included $3.~~1 ~~million~~– inDescription ~~severance expense related to the outsourcing~~ of ~~our~~Business ~~transfer~~and ~~agency~~Accounting ~~transactional processing operations. Excluding the severance expense~~Policies”, ~~adjusted net income1 for the third quarter~~ of ~~2019~~this ~~was~~Quarterly ~~$35.4~~Report ~~million~~on ~~and~~Form ~~adjusted net income per diluted share1 was $0~~10-Q.~~49.~~

●Please ~~Revenues~~see ~~of $267.7 million during~~ the ~~third~~Risks ~~quarter~~Related ~~of 2020 decreased 1% compared~~ to the ~~third~~Proposed ~~quarter~~Merger ofincluded ~~2019.~~in ~~Operating~~Part ~~expenses~~1, ofItem ~~$230.0~~1A—“Risk ~~million~~Factors” ~~during the third quarter~~ of ~~2020~~our ~~held~~Annual ~~steady~~Report ~~compared~~on toForm ~~the~~10-K ~~same~~for ~~quarter in 2019. The operating margin was 14.1% during~~ the ~~third~~year ~~quarter~~ended ofDecember ~~2020~~31, ~~compared~~2020 tofor ~~14.8%~~a ~~during~~discussion ~~the third quarter~~ of ~~2019.~~certain ~~Excluding~~risks ~~severance expense~~ related to ~~the outsourcing of~~ our ~~transfer~~proposed ~~agency~~merger ~~transactional~~with ~~processing~~Macquarie. Please ~~operations~~see ~~during~~ the ~~third~~Company’s ~~quarter~~definitive ofproxy ~~2019,~~statement ~~adjusted~~filed ~~operating~~with ~~expenses1~~the ~~were~~SEC ~~$227.6~~on ~~million~~February ~~and~~17, ~~the~~2021, ~~adjusted~~for ~~operating~~additional ~~margin1~~information ~~was~~on 15the merger.~~9%.~~

Impact of COVID-19

We transitioned most of our workforce to a work from home environment early in March 2020 as part of our response to the COVID-19 pandemic. By late March 2020, 98% of our employees were working remotely, with negligible downtime. The remote work environment has largely continued through the end of 2020 and into 2021. Our steady and proactive response has allowed our asset management and wealth management businesses to maintain full continuity of service and the access that our clients need and expect. With a successful transition to a remote working environment, we plan to closely monitor developments and reintroduce employees to the workplace only when it is safe to do so. The transition of employees to a work from home environment did not result in any material incremental expenses during 2020 or in the first quarter of 2021. For additional discussion regarding steps we have taken to facilitate safety, security and full continuity of service, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.

______________

1 Adjusted net income, adjusted net income per diluted share, adjusted operating expenses and adjusted operating margin are non-GAAP financial measures. See Non-GAAP Financial Measures and Reconciliation of GAAP to non-GAAP Financial Measures on pages 40 and 41.

Table of Contents

For additional discussion regarding the risks that can impact our business, results of operations and financial condition due to COVID-19 and the related economic conditions, please see Part 1, Item 1A—“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.

●Operating ~~Continued execution of strategic initiatives in Asset Management~~Results

o Both sales and redemptions improved vs. the same quarter in 2019, particularly in institutional and unaffiliated

o Continued progress in strategic pricing evaluation, with 75% of AUM at or better than competitor median fees

o AUM ended the quarter at $67.9 billion, a decrease of 1% compared to the third quarter of 2019 due to net outflows partially offset by market appreciation.

● ~~Successful~~Net income attributable to Waddell & Reed Financial, Inc. for the first quarter of 2021 was $1.6 million, or $0.03 per diluted share, compared to $22.0 million, or $0.32 per diluted share, during the first quarter of 2020. The first quarter of 2021 included $51.6 million in costs related to the proposed merger with Macquarie. Excluding the merger-related costs, adjusted net income(1) for ~~Wealth~~the ~~Management~~first ~~recruiting~~quarter of 2021 was $43.7 million and ~~asset~~adjusted ~~growth~~net income per diluted share(1) was $0.70.

o AUA ended the quarter at $62.7 billion, a 10% increase compared to the third quarter of 2019 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by an ongoing migration away from Non-advisory AUA

o Net new AUA continue to improve, and net new Advisory AUA were positive for the 7th consecutive quarter

o Since January 1, 2020, 32 Advisors have affiliated with W&R with combined prior firm AUA totaling over $1.9 billion

o $474 thousand average trailing 12-month productivity per Advisor for the third quarter of 2020 improved 12% compared to the third quarter of 2019

● ~~Robust~~Revenues ~~balance~~of ~~sheet~~$295.4 ~~continued~~million during the first quarter of 2021 increased 12% compared to ~~support~~the ~~investment~~first quarter of 2020. Operating expenses of $293.3 million during the first quarter of 2021 increased 31% compared to the same quarter in ~~strategic~~2020. ~~growth~~The operating margin was 0.7% during the first quarter of 2021, compared to 14.9% during the first quarter of 2020. Excluding merger-related costs during the first quarter of 2021, adjusted operating expenses(1) were $241.6 million and ~~meaningful~~the ~~capital~~adjusted ~~return~~operating margin(1) was 18.2%.

o $744.6 million in cash and investments at the end of the third quarter of 2020, excluding restricted cash

o $56.3 million was returned to shareholders in the third quarter of 2020, including $40.1 million of share repurchases

● ~~Hired~~Asset ~~two~~Management executives focused on strategic growth – one to lead the technology teams dedicated to leveraging technology as a strategic asset across the organization, and one to develop and lead strategies in support of best-in-class client and Advisor experience processes and procedures.Highlights

o

Sales improved compared to the same quarter in 2020, particularly in the institutional and unaffiliated channels. Redemptions also improved, particularly in our unaffiliated channel.

o

AUM ended the quarter at $76.0 billion, an increase of 36% compared to the first quarter of 2020 due to market appreciation partially offset by net outflows.

o

Investment performance improved from the prior quarter in trailing one-, three- and five-year performance as measured by the percentage of assets ranked in the top half of their respective Morningstar universes.

~~Vision~~● ~~and~~Wealth ~~Growth~~Management ~~Strategy~~Highlights

o

AUA ended the quarter at $70.8 billion, a 37% increase compared to the first quarter of 2020 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by an ongoing migration away from Non-advisory AUA.

o

Net new AUA continue to improve, and net new Advisory AUA were positive for the 9th consecutive quarter.

o

$507 thousand average trailing 12-month productivity per Advisor for the first quarter of 2021 improved 10% compared to the first quarter of 2020.

We● ~~remain~~Balance ~~committed~~sheet toremains ~~steadily executing on our long-term vision and growth strategy, which consists of six key, strategic focus areas: (1) competitive products and pricing; (2) continued focus on~~ strong ~~core~~with ~~processes~~$645.9 ~~and~~million ~~performance~~in ~~metrics;~~cash ~~(3) the ability to leverage technology~~ and ~~analytics~~investments asat ~~a strategic asset across~~ the ~~organization;~~end ~~(4)~~of ~~having a growth culture and a more agile organization; (5) sharpening our brand awareness in~~ the ~~marketplace;~~first ~~and~~quarter ~~finally, (6) effectively allocating capital through internal investment initiatives, as well as taking advantage~~ of ~~potential dislocations and acquisition opportunities in the asset management and wealth management industries. Over the quarter~~2021, weexcluding ~~made~~restricted ~~progress on these key focus areas as outlined below~~cash.

Within product and pricing, we introduced a series of enhancements to our InvestEd products, increasing the number of portfolios (including age-based and static options) and adding two ETFs and three Ivy Funds as underlying investments in those options, all designed to provide flexibility and best meet investor needs as they save for education. Additionally, effective October 1, we reduced load fees on all Class A shares for the Ivy Funds. These reductions, which include various breakpoints on all funds at certain purchase levels, are a further illustration of our desire to maintain competitive pricing across our lineup.

Within core processes and performance, we continue to streamline processes as we incorporate ongoing efficiencies. In our asset management business, our institutional distribution model has benefited from new technology that brings a more seamless client experience to further support sales and retention efforts and leverage data analytics insights. In our wealth management business, we appointed an industry veteran to lead our Advisor & Client Experience initiatives. This role will collaborate with key stakeholders across the business to improve Advisor and client journeys, creating new, innovative experiences, increasing loyalty and driving advocacy. This role will also work to develop and lead strategies in support of best-in-class client and Advisor experience processes and procedures while acting on opportunities for innovative investment, growth and expansion.

Within technology & analytics, we appointed a new Chief Technology Officer, who is a member of our executive leadership team and is leading efforts to leverage technology as a strategic asset across the organization, overseeing areas

Table of Contents

including enterprise technology architecture and infrastructure, cybersecurity, application development, data integration, and service delivery management. In our asset management business, we continue to progress on our data strategy, with the rollout of an RIA targeting and segmentation tool. We have also continued with our wealth management and asset management technology platform initiatives with the long-term objectives of improved Advisor and client experiences, enhanced sales enablement and improved internal operations. Specifically, within our wealth management business, we are expanding the capabilities of our WaddellOne digital platform with the introduction of OnePath, a digital account opening and maintenance tool that will reduce the time required to open an account through a data-driven, dynamic workflow process. We plan to launch a pilot program for OnePath during the fourth quarter of 2020, with full implementation by early 2021. OnePath is designed to simplify and enhance workflow for Advisors serving their clients by accelerating straight through processing, reducing clicks, improving e-signature capabilities and providing transparency for Advisors into the status of work in-progress.

Within growth culture and a more agile organization, we took additional steps to enhance our culture, including diversity and inclusion initiatives. We have made great strides to ensure we have a true culture of belonging within our organization. In recognition of some of the steps we have taken this year, the Company was recently named a finalist for the Diversity Champions award by InvestmentNews. We were proud to be recognized, along with other firms, for our ability to inspire others from diverse backgrounds to join, flourish and bring their authentic selves to work in the financial services industry.

Within brand awareness, we continue to execute a full brand review that includes all three of our brands across the enterprise. This is a multi-year effort, launched during the second quarter of 2020 and progressing to date, in partnership with a premiere, well respected global brand agency on the assessment and execution strategies.

Within capital allocation, our balance sheet enables us to maintain regular capital return to shareholders by way of dividends and share buybacks, while also positioning us to pursue strategic acquisitions if opportunities arise. Inorganic growth is a key component of our strategy and we continue to evaluate acquisition opportunities across both our wealth management and asset management businesses.

Impact of COVID-19

The market volatility that began in March 2020, as a result of the reaction to COVID-19 and its impact on the global economy, resulted in significant depreciation in the stock markets. In the second and third quarters of 2020, the markets rebounded, benefiting our measures of AUM and AUA for these periods. Both ending and average AUM and AUA increased during the third quarter of 2020, resulting in increased revenue as compared to the prior quarter.

Some of our expenses, particularly certain distribution expenses, are directly correlated with revenue, and we saw increases in these expenses in line with the revenue increases during the third quarter. In regard to controllable expenses, defined as Compensation and benefits, General and administrative, Technology, Occupancy and Marketing and advertising, while the Company took several incremental actions to reduce these expenses through the first nine months of 2020, we continue to take a long-term view and invest in the areas we think will allow us to come out of the pandemic in a stronger position and drive our long-term growth strategy. We expect controllable expenses to be higher in the fourth quarter of 2020 than in the third quarter of 2020 due to strategic project activity and the absence of meeting expense reductions we experienced in the third quarter of 2020. Our continued discipline on controllable expenses, particularly with increases in revenue, provides operating leverage that enables us to continue to invest in growth.

We transitioned most of our workforce and Advisors to a work from home environment early in March 2020. By late March, 98% of our employees were working remotely, with negligible downtime. The remote work environment has continued through the third quarter of 2020. Our steady and proactive response has allowed our asset management and wealth management businesses to maintain full continuity of service and the access that our clients need and expect. With a successful transition to a remote working environment, we plan to closely monitor developments and reintroduce employees to the workplace only when it is safe to do so. The transition of employees to a work from home environment did not result in any material incremental expenses during the first three quarters of 2020, and we do not expect to incur any material incremental expenses in future periods. For additional discussion regarding steps we have taken to facilitate safety, security and full continuity of service, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.

~~We continue to maintain a strong balance sheet without any significant leverage and ended the quarter with~~ ______________

28(1) Adjusted net income, adjusted net income per diluted share, adjusted operating expenses and adjusted operating margin are non-GAAP financial measures. See Non-GAAP Financial Measures and Reconciliation of GAAP to non-GAAP Financial Measures on pages 33 and 34.

Table of Contents

$744.6 million in cash and investments. Our exceptionally strong balance sheet allows us to continue to execute our long-term growth strategies while retaining our focus on controlling expenses.

Assets Under Management

During the ~~third~~first quarter of ~~2020~~2021, AUM increased 42% to $6776.90 billion from $6574.08 billion at ~~June~~December 3031, 2020 due to market appreciation of $42.74 billion, partially offset by net outflows of $1.82 billion. Sales of $13.80 billion during the current quarter increased 217% compared to the ~~third~~first quarter of ~~2019~~2020. Redemptions decreased 1914% compared to the ~~third~~first quarter of ~~2019~~2020.

Change in Assets Under Management ⁽¹⁾


	Three months ended ~~September~~March 3031, ~~2020~~2021
				Wealth
	Unaffiliated(2)		Institutional	Management	Total
	(in millions)
Beginning Assets	$	2327,~~724~~977	23,~~997~~570	3843,~~245~~275	6474,~~966~~822

Sales (3)		1,~~127~~960	59303	~~634~~688	12,~~820~~951
Redemptions		(12,~~977~~328)	(~~165~~222)	(1,~~488~~588)	(34,~~630~~138)
Net Exchanges		~~239~~290	—	(~~239~~290)	—
Net Flows		(~~611~~78)	~~(106)~~81	(1,~~093~~190)	(1,~~810~~187)

Market Action		~~1,755~~985	~~297~~115	21,~~661~~294	42,~~713~~394
Ending Assets	$	2428,~~868~~884	3,~~188~~766	3943,~~813~~379	6776,~~869~~029


	Three months ended ~~September~~March 3031, ~~2019~~2020
				Wealth
	Unaffiliated(2)		Institutional	Management	Total
	(in millions)
Beginning Assets	$	2726,~~545~~264	3,~~887~~096	40,~~444~~598	7169,~~876~~958

Sales (3)		~~999~~1,581	4943	~~744~~895	12,~~792~~519
Redemptions		(23,~~684~~019)	(~~230~~179)	(1,~~542~~588)	(4,~~456~~786)
Net Exchanges		~~334~~326	—	(~~334~~326)	—
Net Flows		(1,~~351~~112)	(~~181~~136)	(1,~~132~~019)	(2,~~664~~267)

Market Action		(~~337~~4,908)	(29533)	(646,240)	(~~430~~11,681)
Ending Assets	$	2520,~~857~~244	32,~~677~~427	3933,~~248~~339	6856,~~782~~010

During the first nine months of 2020, AUM decreased 3% to $67.9 billion from $70.0 billion at December 31, 2019 due to net outflows of $5.5 billion, partially offset by market appreciation of $3.4 billion. Sales of $6.5 billion during the nine months ended September 30, 2020 increased 2% compared to the nine months ended September 30, 2019. Redemptions during the nine months ended September 30, 2020 decreased 9% compared to the same period of 2019.


	Nine months ended September 30, 2020
				Wealth
	Unaffiliated(2)		Institutional	Management	Total
	(in millions)
Beginning Assets	$	26,264	3,096	40,598	69,958

Sales (3)		4,197	153	2,178	6,528
Redemptions		(7,175)	(546)	(4,335)	(12,056)
Net Exchanges		770	22	(792)	—
Net Flows		(2,208)	(371)	(2,949)	(5,528)

Table of Contents

Market Action			812		463		2,164		3,439
Ending Assets		$	24,868		3,188		39,813		67,869


	Nine months ended September 30, 2019
				Wealth
	Unaffiliated(2)		Institutional	Management	Total
	(in millions)
Beginning Assets	$	24,977	3,655	37,177	65,809

Sales (3)		3,883	244	2,286	6,413
Redemptions		(7,431)	(1,027)	(4,776)	(13,234)
Net Exchanges		914	25	(939)	—
Net Flows		(2,634)	(758)	(3,429)	(6,821)

Market Action		3,514	780	5,500	9,794
Ending Assets	$	25,857	3,677	39,248	68,782

(1)	Includes all activity of the Funds and institutional and separate accounts, including money market funds and transactions at net asset value, accounts for which we receive no commissions.

(2)	Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity.

(3)	Sales consists of gross sales and includes net reinvested dividends, capital gains and investment income.

3026

Table of Contents

Average Assets Under Management

Average AUM, which are generally more indicative of trends in revenue from investment management services than the change in ending AUM, are presented below.


	Three months ended ~~September~~March 3031, ~~2020~~2021
				Wealth
	Unaffiliated		Institutional	Management	Total
	(in millions)
Asset Class:
Equity	$	1923,~~849~~477	3,~~199~~600	2933,~~857~~558	$	5260,~~905~~635
Fixed Income		4,~~468~~588	—	8,~~695~~915		13,~~163~~503
Money Market		~~147~~148	—	1,~~731~~779		1,~~878~~927
Total	$	2428,~~464~~213	3,~~199~~600	4044,~~283~~252	$	6776,~~946~~065


	Three months ended ~~September~~March 3031, ~~2019~~2020
				Wealth
	Unaffiliated		Institutional	Management	Total
	(in millions)
Asset Class:
Equity	$	2019,~~988~~181	32,~~808~~897	2928,~~642~~612	$	5450,~~438~~690
Fixed Income		54,~~210~~874	3—	98,~~256~~894		1413,~~469~~768
Money Market		9798	—	1,~~523~~568		1,~~620~~666
Total	$	2624,~~295~~153	32,~~811~~897	4039,~~421~~074	$	7066,~~527~~124


	Nine months ended September 30, 2020
				Wealth
	Unaffiliated		Institutional	Management	Total
	(in millions)
Asset Class:
Equity	$	18,866	2,977	28,412	$	50,255
Fixed Income		4,542	—	8,647		13,189
Money Market		135	—	1,693		1,828
Total	$	23,543	2,977	38,752	$	65,272


	Nine months ended September 30, 2019
				Wealth
	Unaffiliated		Institutional	Management		Total
	(in millions)
Asset Class:
Equity	$	21,237	3,851	29,396	$	54,484
Fixed Income		5,217	14	9,281		14,512
Money Market		100	—	1,571		1,671
Total	$	26,554	3,865	40,248	$	70,667

Table of Contents

Performance

We have seen an increase from the prior quarter in trailing ~~one~~three- and five-year performance, while trailing ~~three~~one-year performance ~~remained~~decreased ~~consistent~~slightly as measured by the percentage of funds ranked in the top half of their respective Morningstar universes. As measured by percentage of assets, one-~~year~~, ~~performance declined slightly while~~ three- and five-year performance improved. ~~Our~~compared ~~relative~~to ~~performance across~~ the ~~complex~~prior ~~improved during the~~ quarter~~, but we continue to see opportunities to improve performance in the future~~. Our commitment to institutional caliber processes means that while we are mindful of short-term market dynamics, we remain focused on the long term and on maintaining discipline and consistency inacross ~~volatile~~multiple ~~times~~market ~~such as we have seen throughout 2020~~cycles.

The following table is a summary of Morningstar rankings and ratings as of ~~September~~March 3031, ~~2020~~2021:


MorningStar Fund Rankings1	1 Year		3 Years		5 Years
MorningStar Fund Rankings (1)	1 Year		3 Years		5 Years
Funds ranked in top half	4948	%	4957	%	3946	%
Assets ranked in top half	4354	%	5265	%	4762	%


MorningStar Ratings1	Overall		3 Years		5 Years
MorningStar Ratings (1)	Overall		3 Years		5 Years
Funds with 4/5 stars	2635	%	2837	%	1935	%
Assets with 4/5 stars	4056	%	4251	%	3553	%

(1) Based on class I shares, which reflects the largest concentration of sales and assets.

3227

Table of Contents

Assets Under Administration

AUA includes both client assets invested in the Funds and in other companies’ products that are distributed through W&R and held in direct to fund accounts, brokerage accounts or within our fee-based advisory programs. AUA as of ~~September~~March 3031, ~~2020~~2021 increased 1037% as compared to ~~September~~March 3031, ~~2019~~2020 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by anoutflows ~~ongoing~~in ~~migration away from~~ Non-advisory AUA. Average AUA increased 718% for the three months ended ~~September~~March 3031, ~~2020 and increased 5% for the nine months ended September 30~~2021, ~~2020,~~ compared to the same ~~periods~~period in ~~2019. Starting in the second quarter of~~ 2020~~, we updated our definition of net new AUA to include dividends and interest to be more consistent with peers and have reflected this new definition for all periods presented in the table below~~. This quarter marked the ~~7th~~9th straight quarter of positive Advisory AUA net flows. We continue to see increased average productivity per Advisor due to our efforts to transform W&R into a fully competitive and profitable aspect of our business model, with a focus on higher producing Advisors.



		March 31, 2021	March 31, 2020

	(in millions)
Ending AUA
Advisory AUA	$	34,418	23,192
Non-advisory AUA		36,431	28,644
Total ending AUA	$	70,849	51,836


		~~September 30, 2020~~		~~September 30, 2019~~
	~~(in~~Three ~~millions)~~months ended March 31,
Ending AUA
		2021			2020
Advisory AUA	$	29,330		25,107
	(in millions)
Non-advisory AUA		33,364		32,006
Average AUA (1)
Total ending AUA	$	62,694		57,113
Advisory AUA (1)	$	33,489			26,680
Non-advisory AUA (1)		36,555			32,488
Total average AUA (1)	$	70,044			59,168


Net new Advisory AUA (2)	$	501			442
Net new Non-advisory AUA (2), (3)		(619)			(658)
Total net new AUA (2), (3)	$	(118)			(216)


Annualized Advisory AUA growth (4)		6.1	%		6.6	%
Annualized AUA growth (4)		(0.7)	%		(1.4)	%


Advisors and advisor associates		1,298			1,316
Average trailing 12-month production per Advisor (5) (in thousands)	$	507			462


	Three months ended September 30,					Nine months ended September 30,
		2020		2019			2020		2019
	(in millions, except percentage data)
Average AUA (1)
Advisory AUA (1)	$	28,502		24,921		$	26,737		23,732
Non-advisory AUA (1)		32,898		32,490			31,846		32,038
Total average AUA (1)	$	61,400		57,411		$	58,583		55,770


Net new Advisory AUA (2)	$	437		328		$	1,068		977
Net new Non-advisory AUA (2), (3)		(475)		(720)			(1,479)		(2,240)
Total net new AUA (2), (3)	$	(38)		(392)		$	(411)		(1,263)

Annualized Advisory AUA growth (4)		6.4	%	5.3	%		5.3	%	6.1	%
Annualized AUA growth (4)		(0.3)	%	(2.7)	%		(0.9)	%	(3.3)	%


		September 30, 2020	September 30, 2019
Advisors and advisor associates		1,313	1,344
Average trailing 12-month production per Advisor (5) (in thousands)	$	474	422

(1)

Average AUA are calculated as the average of the beginning of month AUA during each reporting period.

(2)

Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.

(3)

Excludes activity related to products held outside of our wealth management platform. These assets represent less than 10% of total AUA.

(4)

Annualized growth is calculated as annualized total net new AUA divided by beginning AUA.

(5)

Production per Advisor is calculated as trailing 12-month Total Underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of Advisors. “Other” underwriting and distribution fees predominantly include fees paid by Advisors for programs and services.

3328

Table of Contents

Results of Operations — Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2020~~2021 as Compared with Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2019~~2020

Total Revenues

Total revenues ~~decreased~~increased 112% to $~~267~~295.74 million for the three months ended ~~September~~March 3031, ~~2020~~2021 compared to the three months ended ~~September~~March 3031, ~~2019. For the nine months ended September 30,~~ 2020, ~~total revenues decreased $28.8 million, or 4%, compared to the same period in the 2019. For both comparative periods, the decreases were~~ due to aincreases ~~decrease~~ in investment management fees ~~and shareholder service fees~~, ~~partially offset by increases in~~ underwriting and distribution fees~~. The~~ ~~decreases in investment management fees were due to lower average AUM~~ and ~~lower effective management fee rates related to targeted fee reductions on certain products made in previous periods and money market fee waivers. The decreases in~~ shareholder service fees ~~were due to a reduction in fund reimbursement revenues related to the outsourcing of our transfer agency transactional processing operations as well as lower assets and number of accounts~~. ~~The~~ increases in underwriting and distribution fees were due to increases in advisory fees due to higher average Advisory AUA and were partially offset by decreases in service and distribution fees due to lower assets and lower sales commissions.


	Three months ended
	~~September~~March 3031,
	~~2020~~2021		~~2019~~2020	Variance
	(in thousands, except percentage data)
Investment management fees	$	~~106~~118,~~617~~016	~~111~~105,~~806~~219	~~(5)~~12	%
Underwriting and distribution fees		~~139~~154,~~456~~795	~~135~~136,~~787~~943	313	%
Shareholder service fees		2122,~~597~~540	2321,~~087~~571	~~(6)~~4	%
Total revenues	$	~~267~~295,~~670~~351	~~270~~263,~~680~~733	~~(1)~~12	%


	Nine months ended
	September 30,
	2020		2019	Variance
	(in thousands, except percentage data)
Investment management fees	$	307,660	334,438	(8)	%
Underwriting and distribution fees		400,032	395,527	1	%
Shareholder service fees		63,745	70,279	(9)	%
Total revenues	$	771,437	800,244	(4)	%

Investment Management Fee Revenues

Investment management fee revenues for the ~~third~~first quarter of ~~2020~~2021 ~~decreased~~increased $512.28 million, or 512%, from the ~~third~~first quarter of ~~2019. For the nine-month period ending September 30,~~ 2020, ~~investment~~due ~~management fee revenues decreased $26.8 million, or 8%, compared~~ to ~~the~~an ~~same~~increase ~~period~~ in ~~2019. For~~average ~~both comparative periods~~AUM, ~~the~~partially ~~decrease~~offset ~~was~~by ~~due to~~ a ~~decrease in average assets and a~~ lower effective management fee rate, which was primarily due to targeted pricing reductions on certain products made in previous periods and money market fee waivers.

The following tables summarize investment management fee revenues, related average AUM, fee waivers and investment management fee rates for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2021 and ~~2019~~2020.


	Three months ended ~~September~~March 3031,
	~~2020~~2021			~~2019~~2020			Variance
	(in thousands, except for management fee rate and average assets)
Investment management fees (net)	$	~~103~~114,~~443~~395			~~107~~102,~~926~~293		~~(4)~~12	%
Average assets (in millions)	$	6472,~~747~~465			6663,~~716~~227		~~(3)~~15	%
Management fee rate (net)		0.~~6356~~6402	%		0.~~6418~~6507	%
Total fee waivers	$	9,~~171~~591			86,~~154~~479		1248	%
Institutional investment management fees (net)	$	3,~~174~~621			32,~~880~~926		~~(18)~~24	%
Institutional average assets (in millions)	$	3,~~199~~600			32,~~811~~897		~~(16)~~24	%
Institutional management fee rate (net)		0.~~3945~~4078	%		0.~~4040~~4063	%

Table of Contents

Revenues from investment management services provided to our retail mutual funds, which are distributed through the unaffiliated and wealth management channels, increased 12% in the first quarter of 2021 compared to the same period in 2020. The increase was due to an increase in average AUM, partially offset by a lower effective management fee rate due to fee reductions on our large cap growth and core bond products that were effective in April 2020 and increased money market fee waivers due to the low interest rate environment.

Institutional account revenues in the first quarter of 2021 increased 24% compared to the first quarter of 2020 primarily due to an increase in average AUM.


	Nine months ended September 30,
	2020			2019			Variance
	(in thousands, except for management fee rate and average assets)
Investment management fees (net)	$	298,712			322,678		(7)	%
Average assets (in millions)		62,295			66,802		(7)	%
Management fee rate (net)		0.6405	%		0.6458	%
Total fee waivers	$	23,804			22,127		8	%
Institutional investment management fees (net)	$	8,948			11,760		(24)	%
Institutional average assets (in millions)		2,977			3,865		(23)	%
Institutional management fee rate (net)		0.4013	%		0.4068	%

~~Revenues~~Table ~~from investment management services provided to our retail mutual funds, which are distributed through the unaffiliated and wealth management channels, decreased 4% in the third quarter~~ of 2020 and decreased 7% for the nine months ended September 30, 2020, compared to the same periods in 2019. These decreases were due to decreases in average AUM and a lower effective management fee rate due to pricing reductions. Effective April 1, 2020, new fee reductions were made on our large cap growth and core bond products, which we expect to have a one to two cent annualized impact on earnings per share. Contents

Institutional account revenues in the third quarter of 2020 decreased $0.7 million compared to the third quarter of 2019. For the nine months ended September 30, 2020, institutional account revenues decreased $2.8 million compared to the same period in 2019. These decreases were due to a decrease in average AUM and a slight decrease in effective management fee rate.


	Annualized long-term redemption rates
	(excludes money market redemptions)
	Three months ended				~~Nine months ended~~
	~~September~~March 3031,				~~September 30,~~
	~~2020~~2021		~~2019~~2020		~~2020~~		~~2019~~
Unaffiliated channel	3233.36	%	4050.9	%	~~41.0~~	%	~~37.8~~	%
Institutional channel	2024.59	%	2324.9	%	~~24.5~~	%	~~35.5~~	%
Wealth Management channel	1312.18	%	1314.46	%	~~13.2~~	%	~~13.9~~	%
Total	2021.52	%	2428.35	%	~~23.8~~	%	~~24.2~~	%

The long-term redemption rate for the three months ended ~~September~~March 3031, ~~2020~~2021 decreased in the unaffiliated channel and the wealth management channel as compared to the three months ended ~~September~~March 3031, ~~2019~~2020. Redemptions decreased during the quarter, particularly in our International Core Equity and High Income funds. The ~~long-term~~ redemption rate ~~for the nine months ended September 30, 2020 increased~~ in the unaffiliated channel as compared to the same period in 2019. Increased market volatility during the first half of 2020 led to more redemptions in this channel, particularly in our International Core Equity and High Income funds. The long-term redemption rate decreased in the institutional channel, ~~primarily~~was ~~due to elevated client redemptions from our Core Equity and Large Cap Growth strategies during the first nine months of 2019~~unchanged. ~~In the wealth management channel, the long-term redemption rate decreased for both comparative periods.~~ Prolonged redemptions in any of our distribution channels could negatively affect revenues in future periods.

The ~~current~~ year-to-date industry average redemption rate, based on data provided by the Investment Company Institute, was 3026.81%, versus our rate of 2321.82%.

Table of Contents

Underwriting and Distribution Fee Revenues

The following tables summarize the significant components of underwriting and distribution fee revenues by distribution channel:


	For the three months ended ~~September~~March 3031, ~~2020~~2021
			Wealth
	Unaffiliated		Management	Total
	(in thousands)
Underwriting and distribution fee revenues
Advisory fees	$	—	82,591	82,591
Advisory Fees	$	—	94,280	94,280
Service and distribution fees		14,~~623~~642	1516,~~305~~763	2931,~~928~~405
Sales commissions		~~223~~15	1719,~~847~~423	1819,~~070~~438
Other revenues		8244	89,~~785~~628	89,~~867~~672
Total	$	14,~~928~~701	~~124~~140,~~528~~094	~~139~~154,~~456~~795


	For the three months ended ~~September~~March 3031, ~~2019~~2020
			Wealth
	Unaffiliated		Management	Total
	(in thousands)
Underwriting and distribution fee revenues
Advisory fees	$	—	73,356	73,356
Advisory Fees	$	—	77,118	77,118
Service and distribution fees		1615,~~286~~276	1614,~~143~~589	3229,~~429~~865
Sales commissions		~~364~~451	20,~~544~~657	2021,~~908~~108
Other revenues		67135	98,~~027~~717	98,~~094~~852
Total	$	1615,~~717~~862	~~119~~121,~~070~~081	~~135~~136,~~787~~943


	For the nine months ended September 30, 2020
			Wealth
	Unaffiliated		Management	Total
	(in thousands)
Underwriting and distribution fee revenues
Advisory fees		—	232,243	232,243
Service and distribution fees		43,569	43,494	87,063
Sales commissions		1,047	53,538	54,585
Other revenues		308	25,833	26,141
Total		44,924	355,108	400,032


	For the nine months ended September 30, 2019
			Wealth
	Unaffiliated		Management	Total
	(in thousands)
Underwriting and distribution fee revenues
Advisory fees	$	—	208,806	208,806
Service and distribution fees		49,366	47,589	96,955
Sales commissions		1,300	60,959	62,259
Other revenues		242	27,265	27,507
Total	$	50,908	344,619	395,527

Underwriting and distribution revenues earned in the ~~third~~first quarter of ~~2020~~2021 increased by $317.79 million, or 313%, compared to the ~~third~~first quarter of ~~2019. Underwriting and distribution revenues earned for the nine months ended September 30,~~ 2020 ~~increased~~primarily ~~$4.5 million, or 1%, compared to the same period in 2019. For both comparative periods, advisory fees revenues increased~~ due to increases in average Advisory AUA. ~~These~~and ~~increases~~service ~~were~~and distribution assets, partially offset by ~~lower~~a ~~service~~decrease ~~and~~in ~~distribution~~sales ~~fees~~commissions due to lower ~~assets and decreases in~~ sales ~~commissions~~volume.

Table of Contents

Shareholder Service Fee Revenue

During the ~~third~~first quarter of ~~2020~~2021, shareholder service fee revenue ~~decreased~~increased $1.50 million, or 64%, compared to the ~~third~~first quarter of ~~2019. For the nine months ended September 30,~~ 2020, ~~shareholder~~primarily ~~service~~due ~~fee revenue decreased $6.5 million, or 9% as compared~~ to ~~the~~an ~~same~~increase ~~period~~in ~~of 2019. For both comparative periods~~assets, ~~the~~partially ~~decrease~~offset ~~was~~by ~~primarily due to~~ a decrease in the number of accounts ~~and assets~~ on which these fees are based ~~and a reduction in fund reimbursement revenues related to the outsourcing of our transfer agency transactional processing operations which was offset by lower costs~~.

Total Operating Expenses

Operating expenses for the ~~third~~first quarter of ~~2020~~2021 ~~were~~increased ~~flat compared to the third quarter of 2019, primarily due to increases in distribution and general and administrative expenses offset~~ by ~~decreases in compensation and benefits, technology, occupancy, marketing and advertising and depreciation. For the nine months ended September 30, 2020, operating expenses decreased~~ $1268.69 million, or 231%, compared to the nine months ended September 30, 2019, primarily due to decreases in compensation and benefits, technology, occupancy, marketing and advertising and depreciation partially offset by increases in distribution and general and administrative expenses. We have been able to successfully reduce controllable expenses compared to the first ~~nine months of 2019 even as we continue to invest in targeted growth areas of our strategy. We expect controllable expenses to be higher in the fourth~~ quarter of ~~2020 than in the third quarter of 2020 due to strategic project activity and the absence of meeting expense reductions we experienced in the third quarter of 2020.~~


	Three months ended
	September 30,
	2020		2019	Variance
	(in thousands)
Distribution	$	122,195	117,425	4	%
Compensation and benefits		62,416	64,999	(4)	%
General and administrative		19,156	16,680	15	%
Technology		14,250	15,019	(5)	%
Occupancy		4,160	5,684	(27)	%
Marketing and advertising		1,370	2,134	(36)	%
Depreciation		2,998	4,833	(38)	%
Subadvisory fees		3,490	3,882	(10)	%
Total operating expenses	$	230,035	230,656	—

Table of Contents

2020, due to an increase in distribution costs due to increased revenue from higher assets and an increase in compensation and benefits, general and administrative and technology primarily related to merger costs, partially offset by decreases in occupancy, marketing and advertising and depreciation.


	Three months ended
	March 31,
	2021		2020	Variance

	(in thousands)
Distribution	$	136,692	120,033	14	%
Compensation and benefits		100,498	58,425	72	%
General and administrative		30,290	18,598	63	%
Technology		17,384	13,502	29	%
Occupancy		2,283	4,709	(52)	%
Marketing and advertising		301	1,896	(84)	%
Depreciation		2,396	3,513	(32)	%
Subadvisory fees		3,447	3,666	(6)	%
Total operating expenses	$	293,291	224,342	31	%


	Nine months ended
	September 30,
	2020		2019	Variance
	(in thousands)
Distribution	$	350,104	343,696	2	%
Compensation and benefits		182,704	191,718	(5)	%
General and administrative		58,278	47,421	23	%
Technology		41,989	47,769	(12)	%
Occupancy		13,160	19,100	(31)	%
Marketing and advertising		4,385	6,497	(33)	%
Depreciation		9,720	16,062	(39)	%
Subadvisory fees		10,444	11,154	(6)	%
Total operating expenses	$	670,784	683,417	(2)	%

Distribution expenses for the ~~third~~first quarter of ~~2020~~2021 increased by $416.87 million, or 414%, compared to the ~~third~~first quarter of ~~2019. For the nine months ended September 30,~~ 2020, ~~distribution expenses increased $6.4 million, or 2%, compared to the same period for 2019. For both comparative periods, the increases in expense were~~ due to increases in underwriting and distribution revenue ~~and~~primarily anin ~~increase~~our inadvisory ~~the~~fee ~~average~~programs ~~Advisor~~and ~~payout~~service ~~rate~~and ~~from~~distribution ~~continued~~fees due to increases in ~~production~~AUA and AUM.

Compensation and benefits during the ~~third~~first quarter of ~~2020~~2021 ~~decreased~~increased $242.61 million, or 472% compared to the same period of ~~2019. For~~2020 ~~the~~primarily ~~nine~~due ~~months~~to ~~ended~~merger-related ~~September~~compensation 30expenses of $35.9 million, ~~2020~~which included retention award accruals, as well as an increase in deferred compensation plan valuation adjustments and ~~benefits~~an ~~expenses~~increase ~~decreased~~in ~~$9.0~~share-based ~~million,~~compensation orexpense ~~5%.~~on ~~For~~outstanding ~~both~~restricted ~~comparative~~share ~~periods,~~units ~~decreases~~as ~~were~~a ~~due~~result toof ~~lower~~the ~~severance~~increase ~~expense~~in ~~primarily~~share ~~related~~price toof ~~the~~our common stock.

Table of Contents

General and administrative expenses for the first quarter of 2021 increased $11.7 million, or 63%, compared to the first quarter of 2020 entirely due to merger-related costs of $13.7 million, including legal fees and expenses related to the Funds for special meetings and proxy solicitation costs, partially offset by lower travel and meeting costs due to restricted travel and a transition to virtual meetings during the pandemic.

~~outsourcing~~Technology ofexpense ~~our~~for ~~transfer~~the ~~agency~~first ~~transactional~~quarter ~~processing~~of ~~operations~~2021 increased $3.9 million, ~~lower~~or ~~costs~~29%, ~~from~~compared ~~reduced~~to ~~headcount~~the ~~and~~same ~~lower~~period ~~share-based~~of ~~compensation~~2020 primarily due to ~~previously~~merger-~~issued~~related ~~awards~~contract ~~vesting~~termination ~~fully,~~fees asof ~~well as forfeitures~~$2.0 ~~These~~million ~~decreases~~and ~~were~~software ~~partially~~costs ~~offset~~for bynew ~~mark-to-market adjustments on deferred compensation plans~~technologies.

Occupancy expense decreased $2.4 million, or 52%, for the first quarter of 2021 compared to the first quarter of 2020 primarily as a result of the planned transition from Advisors leasing space from the Company to Advisors utilizing personal branch offices.

~~General~~Marketing and ~~administrative~~advertising ~~expenses~~expense ~~for~~decreased ~~the third quarter of 2020 increased~~ $21.56 million, or 1584%, ~~compared~~for to the ~~third~~first quarter of ~~2019. For~~2021 ~~the nine months ended September 30, 2020, general and administrative expenses increased $10.9 million, or 23%,~~ compared to the ~~nine~~first ~~months~~quarter ~~ended~~of ~~September~~2020 ~~30, 2019. For both comparative periods, the increases were~~ primarily due to the shift of our transfer agency transactional processing operations outsourcing costs from technology expenses to general and administrative expenses and increased strategic project spending, partially offset by lower ~~travel~~sponsorship ~~and~~fees ~~meeting~~in ~~costs~~connection ~~due~~with tothe ~~restricted~~shift ~~travel and a transition~~ to virtual ~~meetings~~industry ~~during the pandemic~~conferences.

~~Technology~~Depreciation expense ~~for the third quarter of 2020~~ decreased $01.8 1 million, or 532%, ~~compared~~for to the ~~same~~first ~~period~~quarter of ~~2019.~~2021 ~~For the nine months ended September 30, 2020, technology expense decreased $5.8 million, or 12%,~~ compared to the ~~nine~~first ~~months~~quarter ~~ended~~of ~~September~~2020 ~~30, 2019. For both comparative periods, the decreases were~~ primarily due to ~~costs~~certain ~~related~~assets tobecoming ~~the~~fully ~~transfer agency transactional processing operations outsourcing shifting to general and administrative expenses, partially offset by increased consulting and software costs for new technologies~~depreciated.

Occupancy expense decreased $1.5 million, or 27%, for the third quarter of 2020 compared to the third quarter of 2019 and decreased $5.9 million, or 31%, for the nine months ended September 30, 2020, as compared to the same period in 2019. For both comparative periods, the decreases are due to the planned transition of field offices from corporate-leased space to Advisor personal branch offices.

Marketing and advertising expense decreased $0.8 million, or 36%, for the third quarter of 2020 compared to the third quarter of 2019 and decreased $2.1 million, or 33%, for the nine months ended September 30, 2020, as compared to the same period in 2019. For both comparative periods, the decreases are primarily due to lower sponsorship fees in connection with the shift to virtual industry conferences.

Depreciation expense decreased $1.8 million, or 38%, for the third quarter of 2020 compared to the third quarter of 2019 and decreased $6.3 million, or 39%, for the nine months ended September 30, 2020, as compared to the same period in 2019. The decreases were primarily due to capitalized software development assets becoming fully depreciated.

Investment and Other Income

Investment and other income for the three months ended ~~September~~March 3031, ~~2020~~2021 increased 5%$9.6 million, compared to the same period in ~~2019~~2020 primarily due to ~~greater~~ unrealized gains, net of hedging activity, on the seed ~~and corporate~~ investment portfolios in the current period compared to ~~the~~unrealized ~~prior~~losses, ~~year~~net ~~comparative~~of ~~period~~hedging activity, ~~partially~~for ~~offset~~the byprior ayear ~~decline~~comparative inperiod. In ~~interest~~addition, ~~income~~there ~~due~~were to lower ~~interest~~unrealized ~~rates~~losses ~~and~~on ~~redemptions in~~ our corporate ~~laddered~~fixed ~~investment~~income portfolio ~~and~~for ~~Pension~~the ~~Plan~~first ~~settlement~~quarter ~~expenses. For~~of ~~the~~2021, ~~nine~~compared ~~months~~to ~~ended~~the ~~September~~first ~~30,~~quarter of 2020, ~~investment~~ and ~~other~~unrealized ~~income~~losses ~~decreased~~in ~~$10.8~~the ~~million~~first ~~compared~~quarter toof ~~the~~2020 ~~same~~on ~~period~~our inconsolidated ~~2019~~sponsored ~~primarily~~fund ~~due~~that towas ~~lower~~deconsolidated ~~unrealized~~during ~~gains,~~2020 ~~net~~and oftherefore ~~hedging~~did ~~activity,~~not onreoccur. These ~~the~~increases ~~seed~~were ~~and~~partially ~~corporate~~offset ~~investment~~by ~~portfolios,~~ a decline in interest income ~~and~~due ~~Pension~~to ~~Plan~~lower ~~settlement~~interest ~~expenses~~rates inand ~~the~~redemptions ~~current~~in ~~period~~our ~~compared~~corporate tofixed ~~the~~income ~~prior year comparative period~~portfolio.

Taxes

The following table reconciles the statutory federal income tax rate with our effective income tax rate from continuing operations for the three and nine months ended September 30, 2020 and 2019:


	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	3.7		2.7		3.6		2.8
Permanent differences	1.2		0.6		1.3		0.5
Share-based compensation	(0.5)		(0.5)		1.4		1.6
Other items	(0.6)		(0.5)		(0.4)		(0.1)
Effective income tax rate	24.8	%	23.3	%	26.9	%	25.8	%

Table of Contents

Taxes

~~Our~~The ~~effective~~following ~~income~~table ~~tax~~reconciles ~~rate was 24.8% for~~ the ~~three~~statutory ~~months~~federal ~~ended~~income ~~September~~tax ~~30,~~rate ~~2020,~~with asour ~~compared to 23.3% for the same period in 2019, an increase of 1.5%. Our~~ effective income tax rate ~~was~~from ~~26.9%~~continuing operations for the ~~nine~~three months ended ~~September~~March 3031, ~~2020,~~2021 ~~as compared to 25.8% for the same period in 2019, an increase of 1.1%. Increases in state income tax due to additional state tax filings~~ and ~~non-deductible expenses caused the rate to increase in both comparative periods.~~2020:

The Company expects continued future volatility in its effective tax rate as the tax effects of share-based compensation will be impacted by market fluctuations in our stock price. The future effective tax rate could also experience volatility from federal and state tax incentives, unanticipated federal and state tax legislative changes, and unanticipated fluctuations in earnings.


	Three months ended
	March 31,
	2021		2020
Statutory federal income tax rate	21.0	%	21.0	%
State income taxes, net of federal tax benefit	19.0		4.5
Permanent differences	69.6		4.0
Share-based compensation	(57.7)		1.4
Losses attributable to redeemable noncontrolling interests	—		1.1
Uncertain tax positions	1.1		—
Other items	0.1		—
Effective income tax rate	53.1	%	32.0	%

Our effective income tax rate was 53.1% for the three months ended March 31, 2021, as compared to 32.0% for the same period in 2020, an increase of 21.1%. Merger-related non-deductible compensation increased the tax rate impact of state income taxes and permanent differences. This increase was partially offset by a tax benefit on share-based payments, as compared to a tax shortfall in the comparable period, resulting from changes in the Company’s share price. Lower pre-tax book income in 2021 as compared to 2020 magnified the impact of all items on the tax rate.

Liquidity and Capital Resources

~~Management~~The ~~believes~~Merger ~~its~~Agreement ~~available~~limits ~~cash,~~our ~~marketable~~ability ~~securities~~to ~~and~~take ~~expected~~certain ~~cash~~actions ~~flow~~while ~~from~~the ~~operations~~merger ~~will~~is bepending, ~~sufficient~~including, toamong ~~fund~~other ~~the~~things, ~~Company’s~~actions ~~short-term~~related ~~operating~~to ~~and~~acquiring ~~capital~~businesses ~~requirements.~~or ~~Expected~~investment ~~short-term~~securities, ~~uses~~making ofseed ~~cash~~capital ~~include dividend payments~~investments, ~~repurchases~~repurchasing of our ~~Class A~~ common stock, ~~interest~~entering oninto ~~indebtedness~~or ~~and~~amending ~~maturities~~material ~~of outstanding debt in January 2021~~contracts, ~~income~~incurring ~~tax payments, seed money for new products, ongoing technology enhancements, Advisor transition loans,~~ capital expenditures, and ~~collateral~~incurring ~~funding~~additional ~~for margin accounts established to support derivative positions, and could include strategic acquisitions~~debt.

~~Expected~~Management ~~long-term~~believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund the Company’s operating and capital requirements. ~~include~~Subject ~~operating~~to ~~leases~~the terms and ~~purchase~~conditions ~~obligations.~~of ~~Other~~the ~~possible~~Merger ~~long-term~~Agreement, ~~discretionary~~expected uses of cash ~~could~~ include ~~capital~~dividend ~~expenditures~~payments, ~~for~~costs ~~enhancement~~related ofto ~~technology~~our ~~infrastructure,~~proposed ~~strategic~~merger ~~acquisitions~~with Macquarie, ~~payment~~income oftax ~~dividends~~payments, seed ~~money~~capital ~~for~~investments, ~~new~~ongoing ~~products~~technology enhancements, ~~and~~capital ~~repurchases~~expenditures, ofcollateral ~~our~~funding ~~Class~~for Amargin ~~common~~accounts ~~stock~~established to support derivative positions and operating expenses of our business.

Our operations provide much of the cash necessary to fund our priorities, which historically have been as follows:

●

Pay dividends

●

Repurchase our stock

●

Finance growth objectives

Our existing capital return policy is designed to provide financial flexibility to invest in our business, support ongoing operations and maintain a strong balance sheet, while continuing to provide a very competitive return to stockholders. The components of the capital return policy are described below.

Pay Dividends

We paid quarterly dividends on our ~~Class A~~ common stock that resulted in financing cash outflows of $4915.96 million and $5617.61 million for the first ~~nine~~three months of ~~2020~~2021 and ~~2019~~2020, respectively.

The Board of Directors approved a dividend on our ~~Class A~~ common stock of $0.25 per share with aan ~~November~~April 230, ~~2020~~2021 payment date and an ~~October~~April 129, ~~2020~~2021 record date. The total dividend to be paid on ~~November~~April 230, ~~2020~~2021 is $15.68 million.

Repurchase Our Stock

We repurchased 7353,~~892,913~~909 shares and 63,~~849~~807,~~238~~438 shares of our ~~Class A~~ common stock in the open market or privately during the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021 and ~~2019~~2020, respectively, resulting in share repurchases of $~~112~~8.19 million and $~~116~~53.79 million, respectively. ~~We continue to engage in an active share repurchase plan as part of our ongoing capital management plan.~~

~~Finance Growth Objectives~~32

We use cash to fund growth in our distribution channels. We continue to invest in our wealth management channel by offering home office resources, wholesaling efforts, enhanced technology tools, including the modernization of our wealth management platforms, and Advisor transition loans. Our unaffiliated channel requires cash outlays for wholesaler commissions and commissions to third parties on deferred-load product sales and technology enhancements for asset management and distribution. We also provide seed money for new products to further enhance our product offerings and

Table of Contents

~~distribution~~The ~~efforts. As~~terms weof ~~continue~~the Merger Agreement restrict our ability to ~~advance~~repurchase shares of our ~~investment~~common instock ~~improved~~while ~~technology~~the merger is pending; however, we ~~expect~~may ~~increased~~continue ~~costs~~to repurchase shares of our common stock from employees to cover their tax withholdings in ~~this~~connection ~~area~~with the vesting of restricted shares.

Finance Growth Objectives

We use cash to fund growth in our distribution channels. We continue to invest in our wealth management channel by offering home office resources, wholesaling efforts, enhanced technology tools, including the modernization of our wealth management platforms. Our unaffiliated channel requires cash outlays for wholesaler commissions and commissions to third parties on deferred-load product sales and technology enhancements for asset management and distribution. We also provide seed money for new products to further enhance our product offerings and distribution efforts. The Merger Agreement limits our ability to take certain actions while the merger is pending, including making seed capital investments, entering into or amending material contracts and incurring capital expenditures.

Cash Flows

Cash from operations is our primary source of funds. Cash from operations ~~increased~~decreased $723.7 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2020~~2021 compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2019. The~~2020, ~~increase is~~ primarily due to cash inflows during the first nine months of 2020 as compared to cash outflows during first nine months of 2019 related to our net activity in equity and trading debt securities and was partially offset by lower net income.

The payable to investment companies for securities, payable to customers and other receivables accounts can fluctuate significantly based on trading activity at the end of a reporting period. Changes in these accounts resulted in variances within cash from operations on the statement of cash flows; however, there is no impact to the Company’s liquidity and operations due to the variances in these accounts.

Investing activities consist primarily of the seeding and sale of sponsored investment securities, purchases and maturities of investments held in our corporate investment portfolio and capital expenditures. Future investing cash flows will be impacted by limitations on our ability to acquire investment securities and make seed capital investments pursuant to the terms of the Merger Agreement.

Financing activities include payment of dividends and repurchases of our ~~Class A~~ common stock. The first quarter of 2021 also included the repayment of our Series B senior unsecured notes at maturity. Future financing cash outflows will be affected by the existing capital return policy, subject to the terms of the Merger Agreement.

Critical Accounting Policies and Estimates

There have been no material changes in the critical accounting policies and estimates disclosed in the “Critical Accounting Policies and Estimates” section of our ~~2019~~2020 Form 10-K.

Non-GAAP Financial Measures

“Adjusted net income attributable to Waddell & Reed Financial, Inc.,” “adjusted net income per share, basic and diluted,” “adjusted operating expenses,” “adjusted operating income,” and “adjusted operating margin” are non-GAAP financial measures that are not presented in accordance with U.S. generally accepted accounting principles (GAAP). We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding charges and gains that are not indicative of our core operating results, and allow management and investors to better evaluate our performance between periods and compared to other companies in our industry.

These non-GAAP financial measures should not be considered a substitute for financial measures presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance.

A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is included in the table below.

4033

Table of Contents

Reconciliation of GAAP to non-GAAP Financial Measures

(in thousands, except per share and percentage data)


	Three months ended March 31,						~~Nine months ended~~
	~~September 30,~~2021			2020			~~September 30,~~
		2020		2019				2020		2019
Net income attributable to Waddell & Reed Financial, Inc. (GAAP)	$	1,612		$	21,986
Net income attributable to Waddell & Reed Financial, Inc. (GAAP)	$	30,523		33,054			$	77,333		99,056
Adjustments
Adjustments
Merger-related costs (1)		51,643			—
Severance		—		3,081				—		3,081
Tax effect of adjustments		(9,536)			—
Tax effect of adjustments		—		(739)				—		(739)
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP)	$	43,719		$	21,986
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP)	$	30,523		35,396			$	77,333		101,398


Weighted average shares outstanding-basic and diluted		62,485			67,675
Weighted average shares outstanding - basic and diluted		64,240		72,387				65,795		74,446
Adjusted net income per share, basic and diluted (non-GAAP)	$	0.70		$	0.32
Adjusted net income per share, basic and diluted (non-GAAP):	$	0.48		0.49			$	1.18		1.36


Operating expenses (GAAP)	$	293,291		$	224,342
Controllable expenses (GAAP)	$	101,352		104,516			$	300,516		312,505
Adjustments
Adjustments
Merger-related costs (1)		51,643			—
Severance		—		(3,081)				—		(3,081)
Adjusted operating expenses (non-GAAP)	$	241,648		$	224,342
Adjusted controllable expenses (non-GAAP)	$	101,352		101,435			$	300,516		309,424


Operating income (GAAP)	$	2,060		$	39,391
Operating expenses (GAAP)	$	230,035		230,656			$	670,784		683,417
Adjustments
Adjustments
Merger-related costs (1)		51,643			—
Severance		—		(3,081)				—		(3,081)
Adjusted operating income (non-GAAP)	$	53,703		$	39,391
Adjusted operating expenses (non-GAAP)	$	230,035		227,575			$	670,784		680,336


Operating revenue	$	295,351		$	263,733
Operating income (GAAP)	$	37,635		40,024			$	100,653		116,827

Adjustments
Operating margin (GAAP)		0.7	%		14.9	%
Severance		—		3,081				—		3,081
Adjusted operating margin (non-GAAP)		18.2	%		14.9	%
Adjusted operating income (non-GAAP)	$	37,635		43,105			$	100,653		119,908

Operating revenue	$	267,670		270,680			$	771,437		800,244

Operating margin (GAAP)		14.1	%	14.8	%			13.0	%	14.6	%
Adjusted operating margin (non-GAAP)		14.1	%	15.9	%			13.0	%	15.0	%

___________

(1)

Primarily represents retention award accruals, expenses related to the Funds for special meetings and proxy solicitation costs, legal fees and contract termination fees all related to our proposed merger with Macquarie.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices for both our corporate investments and our AUM and AUA, on which our revenues are based, and credit risk related to collateral on our economic hedge program derivative trading. The Company has had no material changes in its market risk policies or its market risk sensitive instruments and positions since December 31, ~~2019~~2020 other than the changes to the investment and derivative portfolios disclosed in Note 4 and Note 5 to the unaudited consolidated financial statements and changes to AUM and AUA in Part I – Item 2 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations”. As further described in Note 5, the Company has an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in sponsored funds.

Item 4.

Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in

4134

Table of Contents

required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~September~~March 3031, ~~2020~~2021, have concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~March 3031, ~~2020~~2021.

The Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. ~~There~~During ~~were no changes in~~ the ~~Company’s~~fiscal ~~internal~~quarter ~~control~~ended ~~over~~March ~~financial~~31, ~~reporting~~2021, ~~that occurred during~~ the ~~fiscal~~Company ~~quarter~~completed ~~ended~~a ~~September~~human ~~30,~~capital ~~2020~~management ~~that~~system ~~have~~conversion. ~~materially~~This ~~affected,~~system orconversion ~~are~~resulted ~~reasonably~~in ~~likely~~changes to ~~materially~~processes ~~affect,~~and ~~the~~controls ~~Company’s~~as ~~internal~~we ~~control~~migrated ~~over~~from ~~financial~~the ~~reporting. However,~~legacy ~~because~~system ofto the ~~inherent~~new ~~limitations~~system. inThe ~~all~~system ~~control~~change ~~systems,~~was noundertaken ~~evaluation~~to ofenhance ~~controls~~our ~~can~~operating ~~provide~~platform ~~absolute~~and ~~assurance~~was ~~that~~not ~~all~~undertaken ~~control~~in ~~issues~~response ~~and~~to ~~instances~~any ofactual ~~fraud,~~or ifperceived ~~any,~~deficiencies ~~within~~in ~~the~~our ~~Company~~internal ~~have~~control ~~been~~over ~~detected~~financial reporting.

Part II.

Other Information

Item 1A1. ~~Risk~~Legal ~~Factors~~Proceedings

~~Except~~See asPart ~~noted below~~I, ~~there~~Item ~~have~~1, ~~been~~Notes ~~no material changes~~ to the ~~Company’s~~Unaudited ~~Risk~~Consolidated ~~Factors~~Financial ~~from~~Statements, ~~those~~Note ~~previously~~11 ~~reported~~– inContingencies, ~~the~~of ~~Company’s~~this ~~2019~~Quarterly Report on Form 10-KQ.

~~The~~Item ~~COVID-19 Pandemic Could Have a Material Adverse Effect on Our Business, Results of Operations or Financial Condition~~1A. ~~The~~ ~~ongoing~~Risk COVID-19 pandemic has caused significant disruption in global financial markets, including significant volatility in the securities markets. Declines in our AUM and AUA negatively impact our future revenues, earnings and growth prospects. In addition, certain of the risk factors set forth in the 2019 Form 10-K could be heightened by the effects of COVID-19 pandemic and related economic conditions resulting in a material adverse effect on our business, results of operations or financial condition, including due to:Factors

●There ~~declines~~have inbeen ~~the~~no ~~securities~~material ~~markets~~changes orto ~~our~~the ~~Funds~~Company’s ~~performance,~~Risk ~~which~~Factors ~~could~~from ~~result~~those inpreviously ~~decreased~~reported ~~sales~~in ~~and~~the ~~increased~~Company’s ~~redemptions;~~2020 Form 10-K.

● unprecedented market dislocation and disparate impact on particular businesses and industries;

● availability of financing capital;

● disruption of worldwide supply chains;

● negative impacts to our distribution channels or other financial institutions with which we do business;

● a work-from-home environment, which could result in reductions in our operating effectiveness or efficiency, increased operational, compliance and cybersecurity risks, the failure of controls and risk management policies to identify and manage risks, or the failure or breach of our operational or security systems or our technology infrastructure;

● the unavailability of key personnel necessary to conduct our business activities and operational challenges and costs associated with the return of employees from their remote working environments to the workplace;

● travel and visitation restrictions that limit our ability to engage with management of businesses in which we invest or may invest and with clients and business partners;

● the ability of Advisors to interact with clients and access their leased office spaces;

● actions and recommendations of federal, state and local governments in response to the COVID-19 pandemic; or

● our inability to reduce the level of our expenses to align with decreases in our revenues.

We are unable to accurately predict the ultimate impact of the COVID-19 pandemic due to various uncertainties, including the duration of the outbreak and length of time it will take for the financial markets and economy to recover and for our employees to safely return to the workplace. We closely monitor the impact of the COVID-19 pandemic, continually assessing its potential effects on our business and on the businesses in which we invest. The extent to which our business and financial results are affected by COVID-19 will largely depend on future developments, which cannot be accurately predicted and are uncertain.

For additional discussion regarding the impact on our business, results of operations and financial condition due to COVID-19 and the related economic conditions, please see Part I – Item 2 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19”.

Table of Contents

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth certain information about the shares of ~~Class A~~ common stock we repurchased during the ~~third~~first quarter of ~~2020~~2021.


				Total Number of	Maximum Number (or
				Shares	Approximate Dollar
				Purchased as	Value) of Shares That
	Total Number	Average		Part of Publicly	May Yet Be
	of Shares	Price Paid		Announced	Purchased Under The
Period	Purchased	per Share		Program (1)	Program (1)
July 1 - July 31	75,000	$	14.52	75,000	n/a
January 1 - January 31	218,616	$	25.03	—	n/a
August 1 - August 31	1,316,500		15.41	1,316,500	n/a
February 1 - February 28	496		25.07	—	n/a
September 1 - September 30	1,225,608		15.19	1,225,608	n/a
March 1 - March 31	134,797		25.02	—	n/a
Total	2353,~~617,108~~909	$	1525.2803	~~2,617,108~~—

(1) In October 2012, our Board of Directors approved a program to repurchase shares of our ~~Class A~~ common stock on the open market. Under the repurchase program, we are authorized to repurchase, in any seven-day period, the greater of (i) 3% of our outstanding ~~Class A~~ common stock or (ii) $50 million of our ~~Class A~~ common stock. We may repurchase our ~~Class A~~ common stock in privately negotiated transactions or through the New York Stock Exchange, other national or regional market systems, electronic communication networks or alternative trading systems. Our stock repurchase program does not have an expiration date or an aggregate maximum number or dollar value of shares that may be repurchased. WeThe terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to ~~engage~~repurchase shares of our common stock from employees to cover their tax withholdings in anconnection ~~active~~with ~~share~~the ~~repurchase~~vesting ~~plan~~of restricted shares.

During the ~~third~~first quarter of ~~2020~~2021, ~~there~~353,909 ~~were no~~ shares were purchased in connection with funding employee income tax withholding obligations arising from the vesting of restricted shares.

4335

Table of Contents

Item 6.

Exhibits


10.1		Credit Agreement, dated October 20, 2020, by and among Waddell & Reed Financial, Inc., the lenders party thereto, Bank of America, N.A., as Administrative Agent for the lenders and Swing Line Lender, and BofA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-13913, on October 21, 2020 and incorporated here by reference.
31.1*		Section 302 Certification of Chief Executive Officer

31.2*		Section 302 Certification of Chief Financial Officer

32.1**		Section 906 Certification of Chief Executive Officer

32.2**		Section 906 Certification of Chief Financial Officer

101*		Materials from the Waddell & Reed Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2020~~2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Notes to the Unaudited Consolidated Financial Statements, tagged in detail.
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith

** Furnished herewith

4436

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this ~~30th~~29th day of ~~October~~April ~~2020~~2021.

	WADDELL & REED FINANCIAL, INC.

	By:	/s/ Philip J. Sanders
		Chief Executive Officer and Director
		(Principal Executive Officer)

	By:	/s/ Benjamin R. Clouse
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Michael J. Daley
		Vice President, Chief Accounting Officer, Investor Relations and Treasurer (Principal Accounting Officer)

4537

Filing Compare · WADDELL & REED FINANCIAL INC