OVERLAND PARK, Kan.--(BUSINESS WIRE)--Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2020 net income1 of $24.8 million, or $0.38 per diluted share, compared to net income of $22.0 million, or $0.32 per diluted share, during the prior quarter and net income of $33.9 million, or $0.45 per diluted share, during the second quarter of 2019.
Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “Despite the continued challenging circumstances as we navigate the global pandemic, our teams have remained focused on delivering quality service to our clients and affiliated advisors every day while executing on the key components of our long-term vision and growth strategy. We continue to make measurable progress in a number of key areas of our strategy, while maintaining a strong financial profile.”
Highlights
-
Significant progress in wealth management transformation continued, with enhanced focus on recruiting, improving operating metrics and additional growth opportunities
- Since January 1, 2020, 21 advisors have affiliated with Waddell & Reed with combined prior firm assets under administration (AUA) totaling $1.4 billion. Advisor count inflected modestly, stabilizing at 1,317 affiliated advisors and advisor associates at June 30, 2020.
- Advisory AUA net flows were positive for the 6th straight quarter despite a challenging market backdrop, illustrating the wealth manager’s ability to capture assets through market cycles.
- Launched the second phase of our wealth management technology transformation, ONESource, which seamlessly connects data across platforms for advisors, and ONEService, a digital repository of processes, procedures and other information available to all advisors.
- Introduced a High Net Worth suite of products and services as well as a new Separately Managed Account Strategies product offering.
-
For Ivy Investments, assets under management (AUM) rebounded along with the broader markets in addition to meaningful improvement in net outflows resulting from lower redemptions
- Introduced two additional strategies in a model-delivery format, bringing the total offering to nine strategies.
- As a result of changes stemming from ongoing strategic evaluation of Ivy fund fees, 76% of AUM is now priced at or below its respective peer median.
- Balance sheet a continued source of strength – maintained significant liquidity while continuing active capital return program and flexibility for organic and inorganic growth opportunities.
- Hired two executives focused on strategic growth – one to support the buildout of enterprise-wide data analytics and related capabilities, and one to support M&A origination, evaluation, and integration.
Financial Summary
The second quarter of 2020 included $12.7 million, or $0.15 per share, of unrealized gains on our investment portfolio within the investment and other (loss) income line compared to $11.0 million, or $0.12 per share, of unrealized losses during the prior quarter and $5.1 million, or $0.05 per share, of unrealized gains during the second quarter of 2019.
Revenues totaled $240.0 million for the quarter, a decrease of $23.7 million and $30.1 million, compared to the prior quarter and the second quarter of 2019, respectively. Operating expenses of $216.4 million decreased $7.9 million and $12.5 million, compared to the first quarter of 2020 and the second quarter of 2019, respectively. The operating margin was 9.8% during the current quarter, compared to 14.9% and 15.3% during the prior quarter and the second quarter of 2019, respectively.
AUM ended the quarter at $65.0 billion, an increase of 16% compared to the prior quarter primarily due to market appreciation and a decrease of 10% compared to the second quarter of 2019. Average AUM were $61.7 billion during the current quarter, compared to $66.1 billion during the prior quarter and $71.4 billion during the second quarter of 2019. Net outflows of $1.4 billion during the current quarter were lower compared to net outflows of $2.3 billion and $2.4 billion in the prior quarter and second quarter of 2019, respectively. Sales of $2.2 billion during the current quarter decreased 13% compared to the prior quarter as second quarter is generally seasonally lower. Sales increased 3% compared to the second quarter of 2019. Redemptions were 24% and 19% lower compared to the prior quarter and second quarter of 2019, respectively.
Wealth management AUA ended the quarter at $59.0 billion, an increase of 14% and 3%, compared to the first quarter of 2020 and the second quarter of 2019, respectively. Average AUA were $56.4 billion during the current quarter, compared to $57.8 billion during the prior quarter and $56.4 billion during the second quarter of 2019. Net new advisory assets were $189.2 million and advisory products continue to drive the majority of new sales. Brokerage asset flows continue to be negative, however, to a lesser extent compared to the prior quarter and the same quarter in 2019. In addition, market appreciation was stronger compared to both the first quarter of 2020 and second quarter of 2019. Starting in the second quarter of 2020, we updated our definition of net new AUA to include dividends and interest for consistency with peers and have reflected this new definition for all periods presented.
Revenues Analysis
Investment management fees decreased $9.4 million, or 9%, compared to the first quarter of 2020 due to a 7% decrease in average AUM and a lower effective management fee rate, partially offset by one more day in the quarter. The effective management fee rate for the current quarter was 64.5 basis points and decreased compared to the prior quarter’s rate due to a shift in product mix as well as targeted fee reductions implemented in the quarter on our large cap growth and core bond products. Compared to the second quarter of 2019, investment management fees declined $17.0 million, or 15%, primarily due to lower average AUM and a lower effective management fee rate due to the previously mentioned fee reductions.
Underwriting and distribution fees decreased $13.3 million, or 10%, compared to the prior quarter due to lower advisory fees and lower service and distribution fees due to lower asset levels. In addition, sales commissions were $5.7 million lower compared to the prior quarter as a result of slower sales activity across insurance product lines. Compared to the same quarter in 2019, underwriting and distribution fees decreased $9.9 million, or 7%, due to lower sales commissions and lower service and distribution fees from lower asset levels, partially offset by an increase in advisory fees as a result of the ongoing shift in sales towards advisory products.
Shareholder service fees decreased $1.0 million, or 5%, compared to the first quarter of 2020 primarily due to a decrease in average assets. Compared to the second quarter of 2019, shareholder service fees declined $3.2 million, or 14%, due to a decrease in average assets and fewer accounts. There was also a reduction in fund reimbursements related to the outsourcing of our transfer agency transactional processing operations and a corresponding reduction in costs.
Operating Expenses Analysis
Distribution expenses decreased $12.2 million, or 10%, compared to the prior quarter and decreased $8.6 million, or 7%, compared to the second quarter of 2019. The decrease compared to both periods is a result of the decrease in underwriting and distribution revenue from lower asset levels and insurance product sales.
Compensation and benefits expense increased $3.4 million, or 6%, compared to the prior quarter primarily due to mark-to-market adjustments on equity compensation and deferred compensation plans. Compensation and benefits was consistent with the second quarter of 2019, as lower headcount was offset by higher equity compensation due to mark-to-market adjustments.
General and administrative expenses increased $1.9 million, or 10%, compared to the first quarter of 2020 due to increased strategic project spending. Compared to the same quarter in 2019, general and administrative expenses increased $4.5 million, or 28%, due to a shift of our transfer agency transactional processing operations costs from technology expenses to general and administrative expenses as a result of outsourcing and increased strategic project spending, partially offset by lower travel and meetings costs.
Technology costs increased $0.7 million, or 5%, compared to the prior quarter primarily due to increased software costs for new technologies. Technology costs decreased $2.2 million, or 13%, compared to the second quarter of 2019 as costs related to the transfer agency transactional processing operations outsourcing were shifted to general and administrative expenses. This decrease was partially offset by increased consulting and software costs for new technologies.
Occupancy expenses decreased $0.4 million, or 9%, compared to the prior quarter and decreased $2.4 million, or 36%, compared to the second quarter of 2019. For both comparative periods, occupancy costs decreased as a result of the planned transition of corporate field offices to independent financial advisors associated with our wealth manager.
Marketing and advertising expenses decreased $0.8 million, or 41%, compared to the prior quarter and decreased $1.3 million, or 53%, compared to the second quarter of 2019. For both comparative periods, marketing and advertising expenses decreased due to lower sponsorship fees in connection with the ongoing shift to virtual industry conferences.
Depreciation expense declined slightly compared to the prior quarter and declined $2.0 million, or 39%, compared to the second quarter of 2019 due to capitalized software development assets becoming fully depreciated.
Investment and Other Income (Loss)
Investment and other income for the second quarter was $15.1 million compared to investment and other losses of $7.7 million in the prior quarter. The $22.9 million increase is primarily due to unrealized gains, net of hedging activity, on the seed and corporate investment portfolios. Compared to the second quarter of 2019, investment and other income increased $6.1 million due to unrealized gains, net of hedging activity, on the seed and corporate investment portfolios, partially offset by a decline in interest income for the corporate investment portfolio due to lower interest rates.
The effective tax rate was 25.3% for the quarter compared to 32.0% in the prior quarter and 29.1% in the second quarter of 2019. The primary driver of the lower tax rate is the impact of market volatility on our estimated pre-tax income for the remainder of 2020 which resulted in a decrease in our annualized effective tax rate during the second quarter of 2020.
__________________
1 Net income represents net income attributable to Waddell & Reed Financial, Inc.
AUM |
|||||||||||||||||||||||||||||
(in millions) |
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Three Months Ended |
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Jun. 30, |
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Mar. 31, |
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Jun. 30, |
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Prior Qtr. |
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Year-over-Year Qtr. |
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2020 |
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2020 |
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2019 |
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Change |
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% |
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Change |
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% |
|
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Unaffiliated 1 |
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Beginning assets |
|
$ |
20,244 |
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|
$ |
26,264 |
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$ |
27,506 |
|
|
|
$ |
(6,020 |
) |
|
(23 |
) |
% |
|
$ |
(7,262 |
) |
|
(26 |
) |
% |
Sales 2 |
|
|
1,490 |
|
|
|
1,581 |
|
|
|
1,291 |
|
|
|
|
(91 |
) |
|
(6 |
) |
% |
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|
199 |
|
|
15 |
|
% |
Redemptions |
|
|
(2,179 |
) |
|
|
(3,019 |
) |
|
|
(2,441 |
) |
|
|
|
840 |
|
|
28 |
|
% |
|
|
262 |
|
|
11 |
|
% |
Net exchanges |
|
|
205 |
|
|
|
326 |
|
|
|
303 |
|
|
|
|
(121 |
) |
|
(37 |
) |
% |
|
|
(98 |
) |
|
(32 |
) |
% |
Net Flows |
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|
(484 |
) |
|
|
(1,112 |
) |
|
|
(847 |
) |
|
|
|
628 |
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|
56 |
|
% |
|
|
363 |
|
|
43 |
|
% |
Market action |
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|
3,964 |
|
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|
(4,908 |
) |
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|
886 |
|
|
|
|
8,872 |
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|
181 |
|
% |
|
|
3,078 |
|
|
347 |
|
% |
Ending assets |
|
$ |
23,724 |
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|
$ |
20,244 |
|
|
$ |
27,545 |
|
|
|
$ |
3,480 |
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|
17 |
|
% |
|
$ |
(3,821 |
) |
|
(14 |
) |
% |
Annualized organic growth rate |
|
|
(9.6 |
) |
% |
|
(16.9 |
) |
% |
|
(12.3 |
) |
% |
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Annualized redemption rate 3 |
|
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39.9 |
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% |
|
50.9 |
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% |
|
36.7 |
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% |
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Institutional |
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Beginning assets |
|
$ |
2,427 |
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|
$ |
3,096 |
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|
$ |
4,053 |
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|
|
$ |
(669 |
) |
|
(22 |
) |
% |
|
$ |
(1,626 |
) |
|
(40 |
) |
% |
Sales 2 |
|
|
52 |
|
|
|
43 |
|
|
|
54 |
|
|
|
|
9 |
|
|
21 |
|
% |
|
|
(2 |
) |
|
(4 |
) |
% |
Redemptions |
|
|
(202 |
) |
|
|
(179 |
) |
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|
(440 |
) |
|
|
|
(23 |
) |
|
(13 |
) |
% |
|
|
238 |
|
|
54 |
|
% |
Net exchanges |
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|
22 |
|
|
|
— |
|
|
25 |
|
|
|
|
22 |
|
|
NM |
|
|
|
|
(3 |
) |
|
(12 |
) |
% |
|
Net Flows |
|
|
(128 |
) |
|
|
(136 |
) |
|
|
(361 |
) |
|
|
|
8 |
|
|
6 |
|
% |
|
|
233 |
|
|
65 |
|
% |
Market action |
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|
698 |
|
|
|
(533 |
) |
|
|
195 |
|
|
|
|
1,231 |
|
|
231 |
|
% |
|
|
503 |
|
|
258 |
|
% |
Ending assets |
|
$ |
2,997 |
|
|
$ |
2,427 |
|
|
$ |
3,887 |
|
|
|
$ |
570 |
|
|
23 |
|
% |
|
$ |
(890 |
) |
|
(23 |
) |
% |
Annualized organic growth rate |
|
|
(21.1 |
) |
% |
|
(17.6 |
) |
% |
|
(35.6 |
) |
% |
|
|
|
|
|
|
|
|
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|
||||
Annualized redemption rate 3 |
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|
28.6 |
|
% |
|
24.9 |
|
% |
|
46.1 |
|
% |
|
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|
|
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|
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Wealth Management |
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|
|||||||
Beginning assets |
|
$ |
33,339 |
|
|
$ |
40,598 |
|
|
$ |
40,095 |
|
|
|
$ |
(7,259 |
) |
|
(18 |
) |
% |
|
$ |
(6,756 |
) |
|
(17 |
) |
% |
Sales 2 |
|
|
649 |
|
|
|
895 |
|
|
|
789 |
|
|
|
|
(246 |
) |
|
(27 |
) |
% |
|
|
(140 |
) |
|
(18 |
) |
% |
Redemptions |
|
|
(1,259 |
) |
|
|
(1,588 |
) |
|
|
(1,609 |
) |
|
|
|
329 |
|
|
21 |
|
% |
|
|
350 |
|
|
22 |
|
% |
Net exchanges |
|
|
(227 |
) |
|
|
(326 |
) |
|
|
(328 |
) |
|
|
|
99 |
|
|
30 |
|
% |
|
|
101 |
|
|
31 |
|
% |
Net Flows |
|
|
(837 |
) |
|
|
(1,019 |
) |
|
|
(1,148 |
) |
|
|
|
182 |
|
|
18 |
|
% |
|
|
311 |
|
|
27 |
|
% |
Market action |
|
|
5,743 |
|
|
|
(6,240 |
) |
|
|
1,497 |
|
|
|
|
11,983 |
|
|
192 |
|
% |
|
|
4,246 |
|
|
284 |
|
% |
Ending assets |
|
$ |
38,245 |
|
|
$ |
33,339 |
|
|
$ |
40,444 |
|
|
|
$ |
4,906 |
|
|
15 |
|
% |
|
$ |
(2,199 |
) |
|
(5 |
) |
% |
Annualized organic growth rate |
|
|
(10.0 |
) |
% |
|
(10.0 |
) |
% |
|
(11.5 |
) |
% |
|
|
|
|
|
|
|
|
|
|
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|
||||
Annualized redemption rate 3 |
|
|
11.6 |
|
% |
|
14.6 |
|
% |
|
13.8 |
|
% |
|
|
|
|
|
|
|
|
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|
||||
Consolidated Total |
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|||||||
Beginning assets |
|
$ |
56,010 |
|
|
$ |
69,958 |
|
|
$ |
71,654 |
|
|
|
$ |
(13,948 |
) |
|
(20 |
) |
% |
|
$ |
(15,644 |
) |
|
(22 |
) |
% |
Sales 2 |
|
|
2,191 |
|
|
|
2,519 |
|
|
|
2,134 |
|
|
|
|
(328 |
) |
|
(13 |
) |
% |
|
|
57 |
|
|
3 |
|
% |
Redemptions |
|
|
(3,640 |
) |
|
|
(4,786 |
) |
|
|
(4,490 |
) |
|
|
|
1,146 |
|
|
24 |
|
% |
|
|
850 |
|
|
19 |
|
% |
Net exchanges |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|||||||
Net Flows |
|
|
(1,449 |
) |
|
|
(2,267 |
) |
|
|
(2,356 |
) |
|
|
|
818 |
|
|
36 |
|
% |
|
|
907 |
|
|
38 |
|
% |
Market action |
|
|
10,405 |
|
|
|
(11,681 |
) |
|
|
2,578 |
|
|
|
|
22,086 |
|
|
189 |
|
% |
|
|
7,827 |
|
|
304 |
|
% |
Ending assets |
|
$ |
64,966 |
|
|
$ |
56,010 |
|
|
$ |
71,876 |
|
|
|
$ |
8,956 |
|
|
16 |
|
% |
|
$ |
(6,910 |
) |
|
(10 |
) |
% |
Annualized organic growth rate |
|
|
(10.3 |
) |
% |
|
(13.0 |
) |
% |
|
(13.2 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized redemption rate 3 |
|
|
22.6 |
|
% |
|
28.5 |
|
% |
|
24.3 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
__________________________
| 1 | Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity. |
| 2 | Sales consist of gross sales and includes net reinvested dividends, capital gains and investment income. |
| 3 | Excludes Money Market. |
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|
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|
MorningStar Fund Rankings 1 |
|
1 Year |
|
3 Years |
|
5 Years |
|
Funds ranked in top half |
|
48 |
% |
49 |
% |
37 |
% |
Assets ranked in top half |
|
45 |
% |
48 |
% |
38 |
% |
|
|
|
|
|
|
|
|
MorningStar Ratings 1 |
|
Overall |
|
3 Years |
|
5 Years |
|
Funds with 4/5 stars |
|
28 |
% |
28 |
% |
26 |
% |
Assets with 4/5 stars |
|
41 |
% |
39 |
% |
41 |
% |
____________________________
| 1 | Based on class I share, which reflects the largest concentration of sales and assets. |
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Three Months Ended |
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Wealth Management |
|
Jun. 30, |
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Mar. 31, |
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Jun. 30, |
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Prior Qtr. |
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Year-over-Year Qtr. |
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(in millions) |
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
|
Change |
|
% |
|
|
|
Change |
|
% |
|
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AUA |
|
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|
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Ending advisory AUA |
|
$ |
27,155 |
|
|
$ |
23,192 |
|
|
$ |
24,789 |
|
|
$ |
3,963 |
|
|
17 |
|
% |
|
$ |
2,366 |
|
|
10 |
|
% |
Ending non-advisory AUA |
|
|
31,836 |
|
|
|
28,644 |
|
|
|
32,641 |
|
|
|
3,192 |
|
|
11 |
|
% |
|
|
(805 |
) |
|
(2 |
) |
% |
Ending total AUA |
|
|
58,991 |
|
|
|
51,836 |
|
|
|
57,430 |
|
|
|
7,155 |
|
|
14 |
|
% |
|
|
1,561 |
|
|
3 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Average advisory AUA 1 |
|
$ |
25,030 |
|
|
$ |
26,680 |
|
|
$ |
23,917 |
|
|
$ |
(1,650 |
) |
|
(6 |
) |
% |
|
$ |
1,113 |
|
|
5 |
|
% |
Average non-advisory AUA 1 |
|
|
30,151 |
|
|
|
32,488 |
|
|
|
32,272 |
|
|
|
(2,337 |
) |
|
(7 |
) |
% |
|
|
(2,121 |
) |
|
(7 |
) |
% |
Average AUA 1 |
|
|
55,181 |
|
|
|
59,168 |
|
|
|
56,189 |
|
|
|
(3,987 |
) |
|
(7 |
) |
% |
|
|
(1,008 |
) |
|
(2 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net new advisory AUA 2 |
|
$ |
189 |
|
|
$ |
442 |
|
|
$ |
349 |
|
|
$ |
(253 |
) |
|
(57 |
) |
% |
|
$ |
(160 |
) |
|
(46 |
) |
% |
Net new non-advisory AUA 2, 3 |
|
|
(346 |
) |
|
|
(658 |
) |
|
|
(747 |
) |
|
|
312 |
|
|
47 |
|
% |
|
|
401 |
|
|
54 |
|
% |
Total net new AUA 2, 3 |
|
|
(157 |
) |
|
|
(216 |
) |
|
|
(398 |
) |
|
|
59 |
|
|
27 |
|
% |
|
|
241 |
|
|
61 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Annualized advisory AUA growth 4 |
|
|
3.3 |
|
% |
|
6.6 |
|
% |
|
5.9 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Annualized AUA growth 4 |
|
|
(1.2 |
) |
% |
|
(1.4 |
) |
% |
|
(2.8 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Advisors and advisor associates |
|
|
1,317 |
|
|
|
1,316 |
|
|
|
1,347 |
|
|
|
1 |
|
|
— |
|
|
|
(30 |
) |
|
(2 |
) |
% |
|
Avg. trailing 12-month revenue per advisor 5 (in thousands) |
|
$ |
464 |
|
|
$ |
462 |
|
|
$ |
408 |
|
|
$ |
2 |
|
|
— |
|
|
$ |
56 |
|
|
14 |
|
% |
|
_________________________
| 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 quarterly 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 includes fees paid by advisors for programs and services. |
Unaudited Consolidated Statements of Income |
||||||||||||||||||||||||||
(in thousands, except per share data and margin) |
||||||||||||||||||||||||||
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Jun. 30, |
|
Mar. 31, |
|
Jun. 30, |
|
Prior Qtr. |
|
Year-over-Year Qtr. |
|
||||||||||||||||
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
% |
|
Change |
|
% |
|
|||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Investment management fees |
$ |
95,824 |
|
|
$ |
105,219 |
|
|
$ |
112,870 |
|
|
$ |
(9,395 |
) |
|
(9 |
) |
% |
$ |
(17,046 |
) |
|
(15 |
) |
% |
Underwriting and distribution fees |
|
123,633 |
|
|
|
136,943 |
|
|
|
133,495 |
|
|
|
(13,310 |
) |
|
(10 |
) |
% |
|
(9,862 |
) |
|
(7 |
) |
% |
Shareholder service fees |
|
20,577 |
|
|
|
21,571 |
|
|
|
23,789 |
|
|
|
(994 |
) |
|
(5 |
) |
% |
|
(3,212 |
) |
|
(14 |
) |
% |
Total |
|
240,034 |
|
|
|
263,733 |
|
|
|
270,154 |
|
|
|
(23,699 |
) |
|
(9 |
) |
% |
|
(30,120 |
) |
|
(11 |
) |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Distribution1 |
|
107,876 |
|
|
|
120,033 |
|
|
|
116,477 |
|
|
|
(12,157 |
) |
|
(10 |
) |
% |
|
(8,601 |
) |
|
(7 |
) |
% |
Compensation and benefits (including share-based compensation of $12,532, $9,983 and $11,119, respectively) |
|
61,863 |
|
|
|
58,425 |
|
|
|
61,876 |
|
|
|
3,438 |
|
|
6 |
|
% |
|
(13 |
) |
|
— |
|
|
General and administrative |
|
20,524 |
|
|
|
18,598 |
|
|
|
16,037 |
|
|
|
1,926 |
|
|
10 |
|
% |
|
4,487 |
|
|
28 |
|
% |
Technology |
|
14,237 |
|
|
|
13,502 |
|
|
|
16,442 |
|
|
|
735 |
|
|
5 |
|
% |
|
(2,205 |
) |
|
(13 |
) |
% |
Occupancy |
|
4,291 |
|
|
|
4,709 |
|
|
|
6,701 |
|
|
|
(418 |
) |
|
(9 |
) |
% |
|
(2,410 |
) |
|
(36 |
) |
% |
Marketing and advertising |
|
1,119 |
|
|
|
1,896 |
|
|
|
2,399 |
|
|
|
(777 |
) |
|
(41 |
) |
% |
|
(1,280 |
) |
|
(53 |
) |
% |
Depreciation |
|
3,209 |
|
|
|
3,513 |
|
|
|
5,228 |
|
|
|
(304 |
) |
|
(9 |
) |
% |
|
(2,019 |
) |
|
(39 |
) |
% |
Subadvisory fees |
|
3,288 |
|
|
|
3,666 |
|
|
|
3,715 |
|
|
|
(378 |
) |
|
(10 |
) |
% |
|
(427 |
) |
|
(11 |
) |
% |
Total |
|
216,407 |
|
|
|
224,342 |
|
|
|
228,875 |
|
|
|
(7,935 |
) |
|
(4 |
) |
% |
|
(12,468 |
) |
|
(5 |
) |
% |
Operating income |
|
23,627 |
|
|
|
39,391 |
|
|
|
41,279 |
|
|
|
(15,764 |
) |
|
(40 |
) |
% |
|
(17,652 |
) |
|
(43 |
) |
% |
Investment and other income (loss) |
|
15,148 |
|
|
|
(7,745 |
) |
|
|
9,025 |
|
|
|
22,893 |
|
|
296 |
|
% |
|
6,123 |
|
|
68 |
|
% |
Interest expense |
|
(1,539 |
) |
|
|
(1,549 |
) |
|
|
(1,552 |
) |
|
|
10 |
|
|
1 |
|
% |
|
13 |
|
|
1 |
|
% |
Income before provision for income taxes |
|
37,236 |
|
|
|
30,097 |
|
|
|
48,752 |
|
|
|
7,139 |
|
|
24 |
|
% |
|
(11,516 |
) |
|
(24 |
) |
% |
Provision for income taxes |
|
9,412 |
|
|
|
9,633 |
|
|
|
14,190 |
|
|
|
(221 |
) |
|
(2 |
) |
% |
|
(4,778 |
) |
|
(34 |
) |
% |
Net income |
|
27,824 |
|
|
|
20,464 |
|
|
|
34,562 |
|
|
|
7,360 |
|
|
36 |
|
% |
|
(6,738 |
) |
|
(19 |
) |
% |
Net income (loss) attributable to redeemable noncontrolling interests |
|
3,000 |
|
|
|
(1,522 |
) |
|
|
614 |
|
|
|
4,522 |
|
|
297 |
|
% |
|
2,386 |
|
|
389 |
|
% |
Net income attributable to Waddell & Reed Financial, Inc. |
$ |
24,824 |
|
|
$ |
21,986 |
|
|
$ |
33,948 |
|
|
$ |
2,838 |
|
|
13 |
|
% |
$ |
(9,124 |
) |
|
(27 |
) |
% |
Net income per share, basic and diluted: |
$ |
0.38 |
|
|
$ |
0.32 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding - basic and diluted |
|
65,488 |
|
|
|
67,675 |
|
|
|
74,694 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating margin |
|
9.8 |
|
% |
|
14.9 |
|
% |
|
15.3 |
|
% |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1Distribution expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Unaffiliated |
|
20,587 |
|
|
|
23,624 |
|
|
|
25,242 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wealth Management |
|
87,289 |
|
|
|
96,409 |
|
|
|
91,235 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
107,876 |
|
|
$ |
120,033 |
|
|
$ |
116,477 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unaudited Consolidated Statements of Income (in thousands, except per share data and margin) |
||||||||||||||||
|
|
Six Months Ended |
|
|
|
|
|
|
||||||||
|
|
Jun. 30, |
|
Jun. 30, |
|
|
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
% |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment management fees |
|
$ |
201,043 |
|
|
$ |
222,632 |
|
|
$ |
(21,589 |
) |
|
(10 |
) |
% |
Underwriting and distribution fees |
|
|
260,576 |
|
|
|
259,740 |
|
|
|
836 |
|
|
— |
|
|
Shareholder service fees |
|
|
42,148 |
|
|
|
47,192 |
|
|
|
(5,044 |
) |
|
(11 |
) |
% |
Total |
|
|
503,767 |
|
|
|
529,564 |
|
|
|
(25,797 |
) |
|
(5 |
) |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distribution1 |
|
|
227,909 |
|
|
|
226,271 |
|
|
|
1,638 |
|
|
1 |
|
% |
Compensation and benefits (including share-based compensation of $22,515 and $23,892, respectively) |
|
|
120,288 |
|
|
|
126,719 |
|
|
|
(6,431 |
) |
|
(5 |
) |
% |
General and administrative |
|
|
39,122 |
|
|
|
30,741 |
|
|
|
8,381 |
|
|
27 |
|
% |
Technology |
|
|
27,739 |
|
|
|
32,750 |
|
|
|
(5,011 |
) |
|
(15 |
) |
% |
Occupancy |
|
|
9,000 |
|
|
|
13,416 |
|
|
|
(4,416 |
) |
|
(33 |
) |
% |
Marketing and advertising |
|
|
3,015 |
|
|
|
4,363 |
|
|
|
(1,348 |
) |
|
(31 |
) |
% |
Depreciation |
|
|
6,722 |
|
|
|
11,229 |
|
|
|
(4,507 |
) |
|
(40 |
) |
% |
Subadvisory fees |
|
|
6,954 |
|
|
|
7,272 |
|
|
|
(318 |
) |
|
(4 |
) |
% |
Total |
|
|
440,749 |
|
|
|
452,761 |
|
|
|
(12,012 |
) |
|
(3 |
) |
% |
Operating income |
|
|
63,018 |
|
|
|
76,803 |
|
|
|
(13,785 |
) |
|
(18 |
) |
% |
Investment and other income |
|
|
7,403 |
|
|
|
18,478 |
|
|
|
(11,075 |
) |
|
(60 |
) |
% |
Interest expense |
|
|
(3,088 |
) |
|
|
(3,100 |
) |
|
|
12 |
|
|
— |
|
|
Income before provision for income taxes |
|
|
67,333 |
|
|
|
92,181 |
|
|
|
(24,848 |
) |
|
(27 |
) |
% |
Provision for income taxes |
|
|
19,045 |
|
|
|
24,861 |
|
|
|
(5,816 |
) |
|
(23 |
) |
% |
Net income |
|
|
48,288 |
|
|
|
67,320 |
|
|
|
(19,032 |
) |
|
(28 |
) |
% |
Net income attributable to redeemable noncontrolling interests |
|
|
1,478 |
|
|
|
1,318 |
|
|
|
160 |
|
|
12 |
|
% |
Net income attributable to Waddell & Reed Financial, Inc. |
|
$ |
46,810 |
|
|
$ |
66,002 |
|
|
$ |
(19,192 |
) |
|
(29 |
) |
% |
Net income per share, basic and diluted: |
|
$ |
0.70 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
||
Weighted average shares outstanding - basic and diluted |
|
|
66,581 |
|
|
|
75,492 |
|
|
|
|
|
|
|
||
Operating margin |
|
|
12.5 |
|
% |
|
14.5 |
|
% |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1Distribution expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unaffiliated |
|
|
44,211 |
|
|
|
49,258 |
|
|
|
|
|
|
|
||
Wealth Management |
|
|
183,698 |
|
|
|
177,013 |
|
|
|
|
|
|
|
||
|
|
$ |
227,909 |
|
|
$ |
226,271 |
|
|
|
|
|
|
|
||
Underwriting and distribution fees (in thousands) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Jun. 30, 2020 |
|||||||
|
|
Unaffiliated |
|
Wealth Management |
|
Total |
|||
Advisory fees |
|
$ |
— |
|
$ |
72,534 |
|
$ |
72,534 |
Service and distribution fees |
|
|
13,670 |
|
|
13,600 |
|
|
27,270 |
Sales commissions |
|
|
373 |
|
|
15,034 |
|
|
15,407 |
Other revenues |
|
|
91 |
|
|
8,331 |
|
|
8,422 |
Total underwriting and distribution fees |
|
$ |
14,134 |
|
$ |
109,499 |
|
$ |
123,633 |
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Mar. 31, 2020 |
|||||||
|
|
Unaffiliated |
|
Wealth Management |
|
Total |
|||
Advisory fees |
|
$ |
— |
|
$ |
77,118 |
|
$ |
77,118 |
Service and distribution fees |
|
|
15,276 |
|
|
14,589 |
|
|
29,865 |
Sales commissions |
|
|
451 |
|
|
20,657 |
|
|
21,108 |
Other revenues |
|
|
135 |
|
|
8,717 |
|
|
8,852 |
Total underwriting and distribution fees |
|
$ |
15,862 |
|
$ |
121,081 |
|
$ |
136,943 |
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Jun. 30, 2019 |
|||||||
|
|
Unaffiliated |
|
Wealth Management |
|
Total |
|||
Advisory fees |
|
$ |
— |
|
$ |
70,220 |
|
$ |
70,220 |
Service and distribution fees |
|
|
16,615 |
|
|
16,041 |
|
|
32,656 |
Sales commissions |
|
|
493 |
|
|
20,794 |
|
|
21,287 |
Other revenues |
|
|
83 |
|
|
9,249 |
|
|
9,332 |
Total underwriting and distribution fees |
|
$ |
17,191 |
|
$ |
116,304 |
|
$ |
133,495 |
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended Jun. 30, 2020 |
|||||||
|
|
Unaffiliated |
|
Wealth Management |
|
Total |
|||
Advisory fees |
|
$ |
— |
|
$ |
149,652 |
|
$ |
149,652 |
Service and distribution fees |
|
|
28,946 |
|
|
28,189 |
|
|
57,135 |
Sales commissions |
|
|
824 |
|
|
35,691 |
|
|
36,515 |
Other revenues |
|
|
226 |
|
|
17,048 |
|
|
17,274 |
Total underwriting and distribution fees |
|
$ |
29,996 |
|
$ |
230,580 |
|
$ |
260,576 |
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended Jun. 30, 2019 |
|||||||
|
|
Unaffiliated |
|
Wealth Management |
|
Total |
|||
Advisory fees |
|
$ |
— |
|
$ |
135,450 |
|
$ |
135,450 |
Service and distribution fees |
|
|
33,081 |
|
|
31,445 |
|
|
64,526 |
Sales commissions |
|
|
935 |
|
|
40,416 |
|
|
41,351 |
Other revenues |
|
|
175 |
|
|
18,238 |
|
|
18,413 |
Total underwriting and distribution fees |
|
$ |
34,191 |
|
$ |
225,549 |
|
$ |
259,740 |
Unaudited Condensed Balance Sheet (in thousands) |
||||||
|
|
|
|
|
|
|
|
|
Jun. 30, |
|
Dec. 31, |
||
|
|
2020 |
|
2019 |
||
Assets |
|
|
|
|
|
|
Cash & cash equivalents (unrestricted) |
|
$ |
156,710 |
|
$ |
151,815 |
Investment securities |
|
|
619,052 |
|
|
688,346 |
Other assets |
|
|
212,443 |
|
|
245,572 |
Property and equipment, net |
|
|
31,928 |
|
|
34,726 |
Goodwill and intangible assets |
|
|
145,869 |
|
|
145,869 |
Total assets |
|
$ |
1,166,002 |
|
$ |
1,266,328 |
Liabilities, redeemable noncontrolling interests and equity |
|
|
|
|
|
|
Short-term notes payable |
|
$ |
94,962 |
|
$ |
— |
Long-term debt |
|
|
— |
|
|
94,926 |
Other liabilities |
|
|
278,480 |
|
|
343,300 |
Redeemable noncontrolling interests |
|
|
25,857 |
|
|
19,205 |
Total stockholders’ equity |
|
|
766,703 |
|
|
808,897 |
Liabilities, redeemable noncontrolling interests and equity |
|
$ |
1,166,002 |
|
$ |
1,266,328 |
Shares outstanding |
|
|
65,174 |
|
|
68,847 |
Unaudited Condensed Cash Flow (in thousands) |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||||||
|
|
Jun. 30, |
|
Mar. 31, |
|
Jun. 30, |
|
Jun. 30, |
|
Jun. 30, |
||||||||||
|
|
2020 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating activities |
|
$ |
(526 |
) |
|
$ |
29,276 |
|
|
$ |
40,644 |
|
|
$ |
28,750 |
|
|
$ |
23,147 |
|
Investing activities |
|
|
20,430 |
|
|
|
27,694 |
|
|
|
9,946 |
|
|
|
48,124 |
|
|
|
(3,987 |
) |
Financing activities |
|
|
(32,123 |
) |
|
|
(69,371 |
) |
|
|
(53,605 |
) |
|
|
(101,494 |
) |
|
|
(113,118 |
) |
Net change during period |
|
$ |
(12,219 |
) |
|
$ |
(12,401 |
) |
|
$ |
(3,015 |
) |
|
$ |
(24,620 |
) |
|
$ |
(93,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|||||||||||
|
|
Jun. 30, |
|
Mar. 31, |
|
Jun. 30, |
|
Jun. 30, |
|
Jun. 30, |
|||||
(in thousands, except number of shares) |
|
2020 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
1,468,367 |
|
|
3,807,438 |
|
|
2,142,894 |
|
|
5,275,805 |
|
|
4,369,219 |
Total cost |
|
$ |
18,061 |
|
$ |
53,939 |
|
$ |
36,824 |
|
$ |
72,000 |
|
$ |
75,963 |
Dividend paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate per share |
|
$ |
0.25 |
|
$ |
0.25 |
|
$ |
0.25 |
|
$ |
0.50 |
|
$ |
0.50 |
Total paid |
|
$ |
16,528 |
|
$ |
17,119 |
|
$ |
18,840 |
|
$ |
33,647 |
|
$ |
38,188 |
Capital returned to stockholders |
|
$ |
34,589 |
|
$ |
71,058 |
|
$ |
55,664 |
|
$ |
105,647 |
|
$ |
114,151 |
Earnings Conference Call
Stockholders, members of the investment community and the general public are invited to listen to a live Web cast of our earnings release conference call today at 10:00 a.m. Eastern. During this call, Philip J. Sanders, CEO, will review our quarterly results. Live access to the teleconference will be available on the “Investor Relations” section of our Web site at ir.waddell.com. A Web cast replay will be made available shortly after the conclusion of the call and accessible for seven days.
Web Site Resources
We invite you to visit the Investor Relations section of our Web site at ir.waddell.com. Under the “Investor Information” tab you will find a link to presentations as well as to data tables, which include supplemental information schedules.
Past performance is no guarantee of future results. Please invest carefully.
About the Company
Through its subsidiaries, Waddell & Reed Financial, Inc. has provided investment management and wealth management services to clients throughout the United States since 1937. Today, we distribute our investment products through the unaffiliated channel under the IVY INVESTMENTS® brand (encompassing broker/dealer, retirement, and registered investment advisors), our wealth management channel (through independent financial advisors associated with WADDELL & REED, INC.), and our institutional channel (including defined benefit plans, pension plans, endowments and subadvisory relationships). For more information, visit ir.waddell.com.
Forward-Looking Statements
This press release 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 assets under management and assets under administration, distribution sources, expense levels, redemption rates, stock repurchases 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, which include, without limitation:
- The loss of existing distribution relationships or inability to access new distribution relationships;
- A reduction in assets under our management 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 assets under management 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 wealth management and investment management 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.
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, 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.
