WADDELL & REED FINANCIAL INC (Form: 10-Q, Received: 11/02/2012 10:06:26)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

o 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)

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 x No ¨ .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

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

Class		Outstanding as of October 25, 2012
Class A common stock, $.01 par value		85,474,855

Table of Contents

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended September 30, 2012

			Page No.
Part I.	Financial Information

Item 1.		Financial Statements (unaudited)

		Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	3

		Consolidated Statements of Income for the three and nine months ended September 30, 2012 and September 30, 2011	4

		Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and September 30, 2011	5

		Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2012	6

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011	7

		Notes to the Unaudited Consolidated Financial Statements	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.		Controls and Procedures	32

Part II.	Other Information

Item 1.		Legal Proceedings	33

Item 1A.		Risk Factors	33

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 5.		Other Information	34

Item 6.		Exhibits	34

		Signatures	35

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	September 30,			December 31,
	2012			2011
	(unaudited)

Assets:
Cash and cash equivalents	$	373,077		323,916
Cash and cash equivalents - restricted	82,885			50,556
Investment securities	171,603			134,262
Receivables:
Funds and separate accounts	39,817			31,842
Customers and other	151,054			107,125
Deferred income taxes	6,418			11,848
Income taxes receivable	5,296			15,067
Prepaid expenses and other current assets	9,563			10,042
Assets of discontinued operations held for sale	15,175			14,953
Total current assets	854,888			699,611

Property and equipment, net	68,877			73,143
Deferred sales commissions, net	70,140			68,788
Goodwill and identifiable intangible assets	161,969			161,969
Deferred income taxes	16,023			4,878
Other non-current assets	12,539			13,533
Assets of discontinued operations held for sale	18,007			60,274
Total assets	$	1,202,443		1,082,196

Liabilities:
Accounts payable	$	113,763		51,951
Payable to investment companies for securities	106,329			104,304
Accrued compensation	52,577			42,670
Payable to third party brokers	49,798			41,125
Other current liabilities	41,909			42,246
Liabilities of discontinued operations held for sale	7,564			6,602
Total current liabilities	371,940			288,898

Long-term debt	190,000			190,000
Accrued pension and postretirement costs	48,497			56,548
Other non-current liabilities	23,516			22,900
Liabilities of discontinued operations held for sale	135			207
Total liabilities	634,088			558,553

Commitments and contingencies

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; 85,600 shares outstanding (85,564 shares outstanding at December 31, 2011)	997			997
Additional paid-in capital	225,758			216,426
Retained earnings	754,448			721,281
Cost of 14,101 common shares in treasury (14,137 at December 31, 2011)	(371,846		)	(366,954	)
Accumulated other comprehensive loss	(41,002		)	(48,107	)
Total stockholders’ equity	568,355			523,643
Total liabilities and stockholders’ equity	$	1,202,443		1,082,196

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					For the nine months
	ended September 30,					ended September 30,
	2012			2011		2012		2011

Revenues:
Investment management fees	$	138,364		133,495		407,477		404,123
Underwriting and distribution fees	122,819			115,786		367,659		353,928
Shareholder service fees	32,182			31,060		95,786		91,920

Total	293,365			280,341		870,922		849,971

Operating expenses:
Underwriting and distribution	147,408			138,111		439,961		419,628
Compensation and related costs (including share-based compensation of $12,299, $11,473, $36,217 and $33,676, respectively)	42,343			36,105		128,432		116,618
General and administrative	15,774			20,979		57,172		54,920
Subadvisory fees	4,921			7,291		16,400		23,684
Depreciation	3,188			3,866		9,876		11,074

Total	213,634			206,352		651,841		625,924

Operating income	79,731			73,989		219,081		224,047
Investment and other income	2,632			(4,178	)	7,906		(771	)
Interest expense	(2,826		)	(2,837	)	(8,477	)	(8,569	)

Income from continuing operations before provision for income taxes	79,537			66,974		218,510		214,707
Provision for income taxes	27,421			27,603		78,332		81,871

Income from continuing operations	52,116			39,371		140,178		132,836
Income (loss) from discontinued operations, net of tax expense of $473, $358, $1,278 and $1,966, respectively	(43,590		)	463		(42,547	)	2,601

Net income	$	8,526		39,834		97,631		135,437

Net income per share, basic and diluted:
Income from continuing operations	$	0.61		0.46		1.63		1.55
Income (loss) from discontinued operations	(0.51		)	—		(0.49	)	0.03
Net income	$	0.10		0.46		1.14		1.58

Weighted average shares outstanding:
Basic	85,753			85,776		85,817		85,951
Diluted	85,755			85,782		85,819		85,964

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					For the nine months
	ended September 30,					ended September 30,
	2012			2011		2012		2011

Net income	$	8,526		39,834		97,631		135,437

Other comprehensive income:

Unrealized appreciation (depreciation) of available for sale investment securities during the period, net of income taxes of $1,427, $(3,768), $2,916 and $(3,297), respectively	2,439			(6,458	)	4,987		(5,657	)

Valuation allowance on investment securities’ deferred tax asset during the period	888			(3,873	)	1,755		(4,129	)

Pension and postretirement benefits, net of income taxes of $481, $212, $1,528 and $644, respectively	816			393		2,364		1,171

Reclassification adjustment for amounts included in net income, net of income taxes of $(537), $(100), $(1,160), and $(830)	(928		)	(172	)	(2,001	)	(1,428	)

Comprehensive income	$	11,741		29,724		104,736		125,394

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 2012

(Unaudited, in thousands)

										Accumulated
				Additional						Other		Total
	Common Stock			Paid-in		Retained		Treasury		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Stock		Income (Loss)		Equity

Balance at December 31, 2011	99,701	$	997	216,426		721,281		(366,954	)	(48,107	)	523,643

Net income	—	—		—		97,631		—		—		97,631
Recognition of share-based compensation	—	—		37,146		—		—		—		37,146
Issuance of nonvested shares	—	—		(31,112	)	—		31,112		—		—
Dividends accrued, $0.75 per share	—	—		—		(64,464	)	—		—		(64,464	)
Excess tax benefits from share-based payment arrangements	—	—		3,298		—		—		—		3,298
Repurchase of common stock	—	—		—		—		(36,004	)	—		(36,004	)
Unrealized appreciation of available for sale investment securities	—	—		—		—		—		4,987		4,987
Valuation allowance on investment securities’ deferred tax asset	—	—		—		—		—		1,755		1,755
Pension and postretirement benefits	—	—		—		—		—		2,364		2,364
Reclassification adjustment for amounts included in net income	—	—		—		—		—		(2,001	)	(2,001	)

Balance at September 30, 2012	99,701	$	997	225,758		754,448		(371,846	)	(41,002	)	568,355

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 months
	ended September 30,
	2012			2011
Cash flows from operating activities:
Net income	$	97,631		135,437
Adjustments to reconcile net income to net cash provided by operating activities:
Write-down of impaired assets	42,373			—
Depreciation and amortization	11,369			12,080
Amortization of deferred sales commissions	40,142			40,178
Share-based compensation	37,146			34,490
Excess tax benefits from share-based payment arrangements	(3,298		)	(7,873	)
Gain on sale of available for sale investment securities	(3,163		)	(2,258	)
Net purchases and sales or maturities of trading securities	(37,806		)	63,543
Loss on trading securities	330			2,740
Loss on sale and retirement of property and equipment	5,205			1,697
Deferred income taxes	(7,243		)	(1,368	)
Changes in assets and liabilities:
Cash and cash equivalents - restricted	(32,662		)	25,535
Receivables from funds and separate accounts	(7,975		)	(2,708	)
Other receivables	(44,204		)	(29,969	)
Other assets	1,550			(549	)
Deferred sales commissions	(41,494		)	(46,925	)
Accounts payable and payable to investment companies	63,995			(2,865	)
Other liabilities	28,491			17,453

Net cash provided by operating activities	$	150,387		238,638

Cash flows from investing activities:
Purchases of available for sale investment securities	(41,676		)	(99,297	)
Proceeds from sales and maturities of available for sale investment securities	48,431			92,276
Additions to property and equipment	(11,270		)	(14,359	)
Proceeds from sales of property and equipment	37			5

Net cash used in investing activities	$	(4,478	)	(21,375	)

Cash flows from financing activities:
Dividends paid	(64,455		)	(51,672	)
Repurchase of common stock	(36,004		)	(57,100	)
Exercise of stock options	—			4,822
Excess tax benefits from share-based payment arrangements	3,298			7,873

Net cash used in financing activities	$	(97,161	)	(96,077	)
Net increase in cash and cash equivalents	48,748			121,186
Cash and cash equivalents at beginning of period	327,083			195,315
Cash and cash equivalents at end of period		375,831		316,501
Less cash and cash equivalents of discontinued operations at end of period		2,754		2,516
Cash and cash equivalents of continuing operations at end of period	$	373,077		313,985

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. and subsidiaries (hereinafter referred to as the “Company,” “we,” “our” and “us”) derive revenues from investment management, investment product underwriting and distribution, and shareholder services administration provided to the Waddell & Reed Advisors Group of Mutual Funds (the “Advisors Funds”), Ivy Funds (the “Ivy Funds”), Ivy Funds Variable Insurance Portfolios (the “Ivy Funds VIP”), and InvestEd Portfolios (“InvestEd”) (collectively, the Advisors Funds, Ivy Funds, Ivy Funds VIP and InvestEd are referred to as the “Funds”), and institutional and separately managed accounts. The Funds and the institutional and separately managed accounts operate under various rules and regulations set forth by the United States Securities and Exchange Commission (the “SEC”). Services to the Funds are provided under investment management agreements, underwriting agreements and shareholder servicing and accounting service agreements that set forth the fees to be charged for these services. The majority of these agreements are subject to annual review and approval by each Fund’s board of trustees and shareholders. Our revenues are largely dependent on the total value and composition of assets under management. Accordingly, fluctuations in financial markets and composition of assets under management can significantly impact revenues and results of operations.

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements included herein 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, 2011 (the “2011 Form 10-K”). Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation.

The accompanying unaudited consolidated financial statements are prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in our 2011 Form 10-K, which include the following: use of estimates, cash and cash equivalents, disclosures about fair value of financial instruments, investment securities and investments in mutual funds, property and equipment, software developed for internal use, goodwill and identifiable intangible assets, deferred sales commissions, revenue recognition, advertising and promotion, share-based compensation and accounting for income taxes.

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 30, 2012, the results of operations for the three and nine months ended September 30, 2012 and 2011, and cash flows for the nine months ended September 30, 2012 and 2011 in conformity with accounting principles generally accepted in the United States.

During the third quarter of 2012, the Company committed to a plan to sell its Legend group of subsidiaries (“Legend”) and on October 29, 2012 the Company signed a definitive agreement to execute the transaction. The sale is expected to close in January 2013. The operational results of Legend have been reclassified as discontinued operations in our unaudited consolidated financial statements for the three months and nine months ended September 30, 2012 and 2011 and as of December 31, 2011. See Note 5 to the consolidated financial statements for further information.

2. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and short-term investments. We consider all highly liquid investments with maturities upon acquisition of 90 days or less to be cash equivalents. Cash and cash equivalents — restricted represents cash held for the benefit of customers segregated in compliance with federal and other regulations.

Table of Contents

3. Investment Securities

Investment securities at September 30, 2012 and December 31, 2011 are as follows:

	Amortized		Unrealized	Unrealized
September 30, 2012	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Municipal bonds	1,371		15	—		1,386
Corporate bonds	30,624		299	—		30,923
Affiliated mutual funds	63,442		2,871	(1,015	)	65,298
	$	95,446	3,186	(1,015	)	97,617

Trading securities:
Mortgage-backed securities						45
Municipal bonds						501
Corporate bonds						17,196
Common stock						35
Affiliated mutual funds						56,209
						73,986

Total investment securities						$	171,603

	Amortized		Unrealized	Unrealized
December 31, 2011	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	9		2	—		11
Municipal bonds	2,549		—	(13	)	2,536
Corporate bonds	45,893		170	(89	)	45,974
Affiliated mutual funds	51,456		2,738	(5,379	)	48,815
	$	99,907	2,910	(5,481	)	97,336

Trading securities:
Mortgage-backed securities						63
Municipal bonds						500
Corporate bonds						17,319
Common stock						37
Affiliated mutual funds						19,007
						36,926

Total investment securities						$	134,262

Purchases of trading securities during the nine months ended September 30, 2012 were $74.5 million; $50.0 million of which represented seed money for two funds. Sales of trading securities were $41.9 million for the same period.

Table of Contents

A summary of available for sale debt securities and affiliated mutual funds with fair values below carrying values at September 30, 2012 and December 31, 2011 is as follows:

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
September 30, 2012	Fair value		losses		value	losses		value	losses
	(in thousands)
Affiliated mutual funds	$	21,535	(345	)	18,056	(670	)	39,591	(1,015	)
Total temporarily impaired securities	$	21,535	(345	)	18,056	(670	)	39,591	(1,015	)

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
December 31, 2011	Fair value		losses		value	losses		value	losses
	(in thousands)
Municipal bonds	$	—	—		2,536	(13	)	2,536	(13	)
Corporate bonds	16,769		(89	)	—	—		16,769	(89	)
Affiliated mutual funds	36,801		(5,362	)	209	(17	)	37,010	(5,379	)
Total temporarily impaired securities	$	53,570	(5,451	)	2,745	(30	)	56,315	(5,481	)

Based upon our assessment of these affiliated mutual funds, the time frame investments have been in a loss position, and our intent to hold affiliated mutual funds until they have recovered, we determined that a write-down was not necessary at September 30, 2012.

Mortgage-backed securities, municipal bonds and corporate bonds accounted for as available for sale and held as of September 30, 2012 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	15,617	15,685
After one year but within 10 years	16,387		16,634
	$	32,004	32,319

Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of September 30, 2012 mature as follows:

	Fair value
	(in thousands)
Within one year	$	5,010
After one year but within 10 years	12,732
	$	17,742

Table of Contents

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-tier hierarchy of inputs is summarized as follows:

· Level 1 — Investments are valued using quoted prices in active markets for identical securities at the reporting date.

· 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.

Assets classified as Level 2 can have a variety of observable inputs, including, but not limited to, benchmark yields, reported trades, broker quotes, benchmark securities and bid/offer quotations. 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. Securities’ values classified as Level 3 are primarily determined through the use of a single quote (or multiple quotes) from dealers in the securities using proprietary valuation models. These quotes involve significant unobservable inputs, and thus, the related securities are classified as Level 3 securities.

The following tables summarize our investment securities as of September 30, 2012 and December 31, 2011 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs:

September 30, 2012	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	55	—	55
Municipal bonds	—		1,887	—	1,887
Corporate bonds	—		48,119	—	48,119
Common stock	35		—	—	35
Affiliated mutual funds	121,507		—	—	121,507
Total	$	121,542	50,061	—	171,603

December 31, 2011	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	74	—	74
Municipal bonds	—		3,036	—	3,036
Corporate bonds	—		63,293	—	63,293
Common stock	37		—	—	37
Affiliated mutual funds	67,822		—	—	67,822
Total	$	67,859	66,403	—	134,262

4. Property and Equipment

During the second quarter of 2012, we recorded a pre-tax charge of $5.0 million to reflect the impairment of certain capitalized software development costs. This charge is included in general and administrative expenses in the statement of income. Our ongoing assessment and changes to our enterprise information technology infrastructure and software resulted in the decision to discontinue the usage of certain software.

Table of Contents

5. Discontinued Operations

During the third quarter of 2012, the Company committed to a plan to sell Legend. On October 29, 2012, the Company signed a definitive agreement with First Allied Holdings Inc. to sell all of the common interests of Legend Group Holdings, LLC. The sale is expected to close in January 2013, subject to regulatory approvals customary for this type of transaction. Based on the value of the consideration the Company expects to receive upon closing of the proposed sale, which is less than the carrying value of net assets to be sold, the Company recorded a non-cash impairment charge of $42.4 million, which is reflected in income (loss) from discontinued operations on the statement of income. The consideration received is subject to working capital and regulatory capital adjustments through the closing date. The agreement also includes an earnout provision based on asset retention for a period of two years following the closing date.

The operational results of Legend have been presented as discontinued operations in the unaudited consolidated financial statements for the three and nine months ended September 30, 2012 and 2011. Legend’s revenues and income (loss) before provision for income taxes follow:

	For the three months				For the nine months
	ended September 30,				ended September 30,
	2012			2011	2012		2011
	(in thousands)

Revenues	$	18,041		17,408	55,310		54,298

Income (loss) before provision for income taxes	$	(43,117	)	821	(41,269	)	4,567

For income tax purposes, the sale will result in a $48.3 million capital loss that may only be utilized to offset future capital gains. Due to the character of the loss and the limited carry forward period permitted by law, the Company may not realize the full tax benefit of the capital loss.

The assets and liabilities of Legend, classified as discontinued operations held for sale in the balance sheet at September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
	2012		2011
	(in thousands)
Assets
Cash and cash equivalents	$	2,754	3,167
Cash and cash equivalents - restricted	346		13
Investment securities	1,342		1,235
Receivables	10,146		9,871
Prepaid expenses and other current assets	587		667
Total current assets	15,175		14,953

Property and equipment, net	989		885
Goodwill	16,868		59,241
Other non-current assets	150		148
Total non-current assets	18,007		60,274

Total assets	33,182		75,227

Liabilities
Accrued compensation	6,625		5,812
Other current liabilities	939		790
Total current liabilities	7,564		6,602

Total non-current liabilities	135		207

Total liabilities	7,699		6,809

Assets less liabilities	$	25,483	68,418

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. Goodwill and identifiable intangible assets (all considered indefinite lived) are as follows:

	September 30,			December 31,
	2012			2011
	(in thousands)

Goodwill	$	138,947		138,947
Accumulated amortization	(31,977		)	(31,977	)
Total goodwill	106,970			106,970

Mutual fund management advisory contracts	38,699			38,699
Mutual fund management subadvisory contracts	16,300			16,300
Total identifiable intangible assets	54,999			54,999

Total	$	161,969		161,969

During the third quarter of 2012, $59.2 million of goodwill related to Legend was allocated to assets of discontinued operations held for sale. Amounts at December 31, 2011 have been adjusted to reflect this change. During the third quarter of 2012, $42.4 million of goodwill related to Legend was written down and included in the loss from discontinued operations in the statement of income.

7 . Indebtedness

Debt is reported at its carrying amount in the consolidated balance sheets. The fair value of the Company’s outstanding indebtedness is approximately $207.2 million at September 30, 2012 compared to the carrying value of $190.0 million. Fair value is calculated based on Level 2 inputs.

8. Income Tax Uncertainties

As of January 1, 2012 and September 30, 2012, the Company had unrecognized tax benefits, including penalties and interest, of $9.8 million ($6.9 million net of federal benefit) and $11.0 million ($7.7 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate. Unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the consolidated balance sheets; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable.

The Company’s accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes. As of January 1, 2012, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $2.3 million ($1.8 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to income tax uncertainties recognized in the statement of income for the nine month period ended September 30, 2012 was $0.2 million. The total amount of accrued penalties and interest related to uncertain tax positions at September 30, 2012 of $2.6 million ($2.1 million net of federal benefit) is included in the total unrecognized tax benefits described above.

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 2009 through 2011 federal tax years remain open and subject to potential future audit. The 2006 and 2007 federal tax years also remain open to a limited extent due to capital loss carryback claims. State income tax returns for all years after 2008, and in certain states, income tax returns prior to 2009, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.

Table of Contents

The Company is currently being audited in various state jurisdictions. It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period. It is estimated that the Company’s liability for unrecognized tax benefits, including penalties and interest, could decrease by approximately $0.6 million to $3.5 million ($0.4 million to $2.3 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on the results of operations.

9. Pension Plan and Postretirement Benefits Other Than Pension

We provide a non-contributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”). Benefits payable under the Pension Plan are based on employees’ years of service and compensation during the final 10 years of employment. We also sponsor an unfunded defined benefit postretirement medical plan that covers substantially all employees, as well as Waddell & Reed and Legend advisors. The medical plan is contributory with participant contributions adjusted annually. The medical plan does not provide for post age 65 benefits with the exception of a small group of employees that were grandfathered when such plan was established.

The components of net periodic pension and other postretirement costs related to these plans are as follows:

	Pension Benefits					Other Postretirement Benefits		Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,					Three months ended September 30,		Nine months ended September 30,				Nine months ended September 30,
	2012			2011		2012	2011	2012		2011		2012	2011
	(in thousands)							(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,343		1,775		173	139	7,030		5,326		519	418
Interest cost	1,893			1,799		100	100	5,678		5,397		300	301
Expected return on plan assets	(2,200		)	(2,191	)	—	—	(6,600	)	(6,573	)	—	—
Actuarial loss amortization	1,141			451		3	—	3,422		1,353		9	—
Prior service cost amortization	139			139		14	14	417		417		42	42
Transition obligation amortization	1			1		—	—	4		3		—	—

Total	$	3,317		1,974		290	253	9,951		5,923		870	761

During the first nine months of 2012, we contributed $15.0 million to the Pension Plan. We do not expect to make additional contributions for the remainder of 2012.

Table of Contents

10. Stockholders’ Equity

Earnings per Share

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

	Three months ended			Nine months ended
	September 30,			September 30,
	2012		2011	2012	2011
	(in thousands, except per share amounts)

Net income from continuing operations	$	52,116	39,371	140,178	132,836

Weighted average shares outstanding - basic	85,753		85,776	85,817	85,951
Dilutive potential shares from stock options	2		6	2	13
Weighted average shares outstanding - diluted	85,755		85,782	85,819	85,964

Earnings per share from continuing operations
Basic	$	0.61	0.46	1.63	1.55
Diluted	$	0.61	0.46	1.63	1.55

Anti-dilutive Securities

There were no anti-dilutive options for the three and nine months ended September 30, 2012, or the nine months ended September 30, 2011. Options to purchase 27 thousand shares of our common stock were excluded from the diluted earnings per share calculation for the three months ended September 30, 2011 because they were anti-dilutive.

Dividends

On July 18, 2012, the Board of Directors (the “Board”) approved a dividend on our common stock in the amount of $0.25 per share to stockholders of record as of October 11, 2012 to be paid on November 1, 2012. The total dividend to be paid is approximately $21.4 million and is included in other current liabilities in the consolidated balance sheet at September 30, 2012.

Common Stock Repurchases

The Board has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs.

There were 213,366 shares and 651,878 shares repurchased in the open market or privately during the three months ended September 30, 2012 and 2011, respectively, which included 1,966 shares and 1,355 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the three months ended September 30, 2012 and 2011, respectively. There were 1,158,720 shares and 1,609,551 shares repurchased in the open market or privately during the nine months ended September 30, 2012 and 2011, respectively, which included 415,320 shares and 341,527 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during each of these two periods.

Table of Contents

11. Share-Based Compensation

A summary of stock option activity and related information for the nine months ended September 30, 2012 is presented in the table below. All options outstanding expire prior to December 31, 2013.

	Options		Weighted average exercise price
Outstanding, December 31, 2011	27,595		$	28.64
Granted	—		—
Exercised	—		—
Terminated/Cancelled	(16,224	)	$	33.94
Outstanding, September 30, 2012	11,371		$	21.09
Exercisable, September 30, 2012	11,371		$	21.09

12. 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.

Michael E. Taylor, Kenneth B. Young, individuals, on behalf of themselves individually and on behalf of others similarly situated v. Waddell & Reed, Inc., a Delaware Corporation; and DOES 1 through 10 inclusive; Case No. 09-CV-2909 DMS WVG; in the United States District Court for the Southern District of California.

In this action filed December 28, 2009, the Company was sued in an individual action, class action and Fair Labor Standards Act (“FLSA”) nationwide collective action by two former advisors asserting misclassification of financial advisors as independent contractors instead of employees. Plaintiffs, on behalf of themselves and a purported class of Waddell & Reed, Inc. financial advisors, assert claims under the FLSA for minimum wages and overtime wages, and under California Labor Code Statutes for timely payment of wages, minimum wages, overtime compensation, meal periods, reimbursement of losses and business expenses and itemized wage statements and a claim for Unfair Business Practices under §17200 of the California Business & Professions Code. Plaintiffs seek declaratory and injunctive relief and monetary damages.

Plaintiffs moved for conditional collective action certification under the FLSA. The Company opposed this motion and additionally moved for summary judgment on Plaintiffs’ individual FLSA claims. The Court issued an order on January 3, 2012 granting the Company’s summary judgment motions, holding that Plaintiffs’ individual FLSA claims fail as a matter of law, and denying Plaintiffs’ motion for conditional collective action certification under the FLSA as moot. This ruling effectively removes all nationwide FLSA claims from the case.

Subsequently, the Company moved for summary judgment on Plaintiffs’ individual California claims. The court issued an order on August 20, 2012 granting the Company’s summary judgment motions, holding that Plaintiff’s individual California claims fail as a matter of law. This order effectively dismissed Plaintiffs from the case, both individually and as putative class representatives.

However, in its August 20, 2012 order, the court also granted Plaintiffs’ motion to add a new individual and putative class representative to the action, effectively replacing the originally named Plaintiffs. The newly named Plaintiff intends to continue to pursue the California claims referenced above on behalf of the putative class, as well as newly added representative derivative claims under the California Private Attorney General Act.

The Company has moved for summary judgment, asking the court to dismiss the newly named Plaintiff’s individual claims. The arguments made in support of this request are the same as those that

Table of Contents

prevailed in the Taylor and Young motions for summary judgment. If the court grants the pending motion, it will effectively dismiss all remaining claims in the case.

An adverse determination in this matter could have a material adverse impact on the financial position and results of operations of the Company. The Company intends to continue to vigorously defend against all claims.

At this stage in this litigation, based upon the information currently available to the Company, the Company is not able to determine that an unfavorable outcome is remote, reasonably possible, or probable, and the Company has determined that it cannot reasonably estimate either the amount or the range of possible losses that would result if plaintiffs were to prevail, therefore, the Company has not made any accruals for damages with respect to this matter in its consolidated financial statements.

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

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 assets under management, distribution sources, expense levels, redemption rates 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 or on behalf of the Company 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 those 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, 2011, which include, without limitation:

· 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;

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

· The loss of existing distribution channels or inability to access new distribution channels;

· 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;

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

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

· 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; and

· Our inability to hire and retain senior executive management and other key personnel.

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, 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, 2011 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2012. All forward-looking statements speak only as 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.

Overview

Founded in 1937, we are one of the oldest mutual fund complexes in the United States, 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. Significant increases or decreases in the various securities markets can have a material impact on our results of operations, financial condition and cash flows.

We derive our revenues from providing investment management, investment product underwriting and distribution, and shareholder services administration primarily to mutual funds and institutional and separately managed accounts. Investment management fees are based on the amount of average assets under management and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Our underwriting and distribution revenues consist of commissions derived from sales of investment and insurance products, Rule 12b-1 asset-based service and distribution fees, distribution fees on certain variable products, fees earned on fee-based asset allocation products, and related advisory services. The products sold have various commission structures and the revenues received from those sales vary based on the type and amount sold. Shareholder service fee revenue includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees, and is earned based on assets under management or number of client accounts. Our major expenses are underwriting and distribution-related commissions, employee compensation, amortization of deferred sales commissions, subadvisory fee expenses and information technology expense.

One of our distinctive qualities is that we are a significant distributor of investment products. Our retail products are distributed through our Advisors channel sales force of independent financial advisors or through our Wholesale channel, which includes third-parties such as other broker/dealers, registered investment advisors, and various retirement platforms. We also market our investment advisory services to institutional investors, either directly or through consultants, through our Institutional channel.

Table of Contents

Third Quarter Highlights

· During the third quarter of 2012, the Company committed to a plan to sell its Legend group of subsidiaries (“Legend”). On October 29, 2012, the Company signed a definitive agreement with First Allied Holdings Inc. to sell all of the common interests of Legend Group Holdings, LLC. The sale is expected to close in January 2013, subject to regulatory approvals customary for this type of transaction. Based on the value of the consideration the Company expects to receive upon closing of the proposed sale of Legend, which is less than the carrying value of net assets to be sold, the Company recorded a non-cash impairment charge of $42.4 million, which is reflected in income (loss) from discontinued operations on the statement of income. The consideration received is subject to working capital and regulatory capital adjustments through the closing date. The agreement also includes an earnout provision based on asset retention for a period of two years following the closing date.

The operational results of Legend have been reclassified as discontinued operations in the unaudited consolidated financial statements for the three months and nine months ended September 30, 2012 and 2011. Unless stated otherwise, any reference to income statement items refers to results from continuing operations. For income tax purposes, the sale will result in a $48.3 million capital loss that may only be utilized to offset future capital gains. Due to the character of the loss and the limited carry forward period permitted by law, the Company may not realize the full tax benefit of the capital loss.

· Our assets under management increased 6% during the quarter, from $89.1 billion to $94.8 billion, driven by market appreciation.

· Income from continuing operations increased 32% compared to the third quarter of 2011, and our operating margin was 27.2%, an improvement of 3% over prior year third quarter.

· We recorded gains of $2.9 million from the sale of trading and available for sale mutual fund holdings. Due to these gains, income tax expense was reduced by $1.0 million.

· Our balance sheet remains solid, and we ended the quarter with cash and investments of $544.7 million.

Table of Contents

Assets Under Management

During the third quarter, assets under management increased to $94.8 billion compared to $89.1 billion on June 30, 2012 due to market appreciation of $4.9 billion and net flows of $0.8 billion.

Change in Assets Under Management(1)

	Third Quarter 2012
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	33,846		44,379		10,894		89,119

Sales (net of commissions)	906			3,563		721		5,190
Redemptions	(1,019		)	(3,088	)	(532	)	(4,639	)
Net Sales	(113		)	475		189		551

Net Exchanges	(60		)	59		—		(1	)
Reinvested Dividends & Capital Gains	98			136		42		276
Net Flows	(75		)	670		231		826

Market Appreciation	1,603			2,601		660		4,864
Ending Assets	$	35,374		47,650		11,785		94,809

	Third Quarter 2011
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	34,843		46,558		10,346		91,747

Sales (net of commissions)	867			3,957		1,625		6,449
Redemptions	(1,004		)	(3,515	)	(737	)	(5,256	)
Net Sales	(137		)	442		888		1,193

Net Exchanges	(79		)	79		—		—
Reinvested Dividends & Capital Gains	83			29		18		130
Net Flows	(133		)	550		906		1,323

Market Depreciation	(4,950		)	(8,970	)	(1,694	)	(15,614	)
Ending Assets	$	29,760		38,138		9,558		77,456

(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.

Table of Contents

Assets under management increased to $94.8 billion on September 30, 2012 compared to $83.2 billion on December 31, 2011 due to market appreciation of $9.1 billion and net flows of $2.5 billion.

	Year to Date 2012
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	31,709		40,954		10,494		83,157

Sales (net of commissions)	2,982			11,860		1,940		16,782
Redemptions	(3,022		)	(10,069	)	(2,097	)	(15,188	)
Net Sales	(40		)	1,791		(157	)	1,594

Net Exchanges	(6		)	3		—		(3	)
Reinvested Dividends & Capital Gains	312			472		130		914
Net Flows	266			2,266		(27	)	2,505

Market Appreciation	3,399			4,430		1,318		9,147
Ending Assets	$	35,374		47,650		11,785		94,809

	Year to Date 2011
	Advisors			Wholesale		Institutional		Total
	(in millions)

Beginning Assets	$	33,181		40,883		9,609		83,673

Sales (net of commissions)	2,942			12,887		2,958		18,787
Redemptions	(3,053		)	(9,242	)	(1,977	)	(14,272	)
Net Sales	(111		)	3,645		981		4,515

Net Exchanges	(196		)	194		—		(2	)
Reinvested Dividends & Capital Gains	266			146		63		475
Net Flows	(41		)	3,985		1,044		4,988

Market Depreciation	(3,380		)	(6,730	)	(1,095	)	(11,205	)
Ending Assets	$	29,760		38,138		9,558		77,456

Table of Contents

Average assets under management, which are generally more indicative of trends in revenue for providing investment management services than the quarter over quarter change in ending assets under management, are presented below.

Average Assets Under Management

	Third Quarter 2012
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	24,221	37,381	10,699	$	72,301
Fixed Income	9,164		8,374	788	18,326
Money Market	1,304		174	—	1,478
Total	$	34,689	45,929	11,487	$	92,105

	Third Quarter 2011
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	23,908	40,009	9,726	$	73,643
Fixed Income	7,740		3,705	786	12,231
Money Market	1,213		347	—	1,560
Total	$	32,861	44,061	10,512	$	87,434

	Year to Date 2012
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	24,135	37,958	10,583	$	72,676
Fixed Income	8,789		7,049	780	16,618
Money Market	1,309		195	—	1,504
Total	$	34,233	45,202	11,363	$	90,798

	Year to Date 2011
	Advisors		Wholesale	Institutional	Total
	(in millions)

Asset Class:
Equity	$	25,176	40,337	9,587	$	75,100
Fixed Income	7,503		3,423	779	11,705
Money Market	1,201		300	—	1,501
Total	$	33,880	44,060	10,366	$	88,306

Table of Contents

Results of Operations — Three and Nine Months Ended September 30, 2012 as Compared with Three and Nine Months Ended September 30, 2011

Net Income

	Three months ended
	September 30,
	2012			2011		Variance

Net Income (in thousands)	$	8,526		39,834		-79	%
Income from continuing operations		52,116		39,371		32	%
Earnings per share, basic and diluted
Net Income	$	0.10		0.46		-78	%
Income from continuing operations	$	0.61		0.46		33	%

Operating Margin	27.2		%	26.4	%	3	%

	Nine months ended
	September 30,
	2012			2011			Variance

Net Income (in thousands)	$	97,631			135,437		-28	%
Income from continuing operations		140,178		132,836			6	%
Earnings per share, basic and diluted
Net Income	$	1.14		1.58			-28	%
Income from continuing operations	$	1.63		1.55			5	%

Operating Margin	25.2		%	26.4		%	-5	%

We reported income from continuing operations of $52.1 million, or $0.61 per diluted share, for the third quarter of 2012 compared to $39.4 million, or $0.46 per diluted share, for the third quarter of 2011. For the nine months ended September 30, 2012, income from continuing operations was $140.2 million, or $1.63 per diluted share, compared to $132.8 million, or $1.55 per diluted share, for the nine months ended September 30, 2011.

During the second quarter of 2012, we recorded a pre-tax charge of $5.0 million ($3.1 million net of taxes, or $0.04 per diluted share) to reflect the impairment of certain capitalized software development costs. This charge is included in general and administrative expenses. Our ongoing assessment and changes to our enterprise information technology infrastructure and software resulted in the decision to discontinue the usage of certain software.

Table of Contents

Total Revenues

Total revenues increased 5% to $293.4 million for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 due to an increase in average assets under management of 5%, offset by a decrease in gross sales of 20%. For the nine months ended September 30, 2012, total revenues increased $21.0 million, or 2%, compared to the same period in the prior year due to an increase in average assets under management of 3%, offset by a decrease in gross sales of 11%.

	Three months ended
	September 30,
	2012		2011	Variance
	(in thousands, except percentage data)

Investment management fees	$	138,364	133,495	4	%
Underwriting and distribution fees	122,819		115,786	6	%
Shareholder service fees	32,182		31,060	4	%
Total revenues	$	293,365	280,341	5	%

	Nine months ended
	September 30,
	2012		2011	Variance
	(in thousands, except percentage data)

Investment management fees	$	407,477	404,123	1	%
Underwriting and distribution fees	367,659		353,928	4	%
Shareholder service fees	95,786		91,920	4	%
Total revenues	$	870,922	849,971	2	%

Investment Management Fee Revenues

Investment management fee revenues are earned for providing investment advisory services to the Funds and to institutional and separate accounts. Investment management fee revenues increased $4.9 million, or 4%, from last year’s third quarter. For the nine month period ended September 30, 2012, investment management fee revenues increased $3.4 million, or 1%, compared to the same period in 2011.

Revenues from investment management services provided to our retail mutual funds, which are distributed through the Advisors, Wholesale and Institutional channels, were $127.5 million for the quarter ended September 30, 2012. Revenues increased $4.1 million, or 3%, compared to the third quarter of 2011, while the related retail average assets increased 5% to $80.6 billion. For the nine months ended September 30, 2012, revenues from investment management services provided to our retail mutual funds were $375.3 million. Revenues increased $1.8 million, or 1%, compared to the first nine months of 2011, while the related retail average assets increased 2% to $79.4 billion. For both periods, investment management fee revenues increased less than the related retail average assets due to a shift in assets to products with lower than average management fee rates.

Institutional account revenues were $10.9 million for the third quarter of 2012, representing an increase of $0.8 million, or 8%, from the third quarter of 2011, while average assets increased 9%. For the nine month period ended September 30, 2012, institutional account revenues were $32.2 million, an increase of 5% compared to the same period in 2011, and average assets increased 10%. For both periods, account revenues increased less than the related average assets due to a decline in the average management fee rate.

Long-term redemption rates (which exclude money market fund redemptions) in the Advisors channel were 9.7% in both the third quarter of 2012 and year-to-date in 2012, compared to 10.0% in the third quarter of 2011 and 9.9% for the first nine months of 2011. In the Wholesale channel, long-term redemption rates

Table of Contents

were 26.6% for the quarter ended September 30, 2012, compared to 31.0% in the third quarter of 2011. For the nine months ended September 30, 2012, the Wholesale channel’s long-term redemption rate increased to 30.0% compared to 27.6% for the same period in 2011. We expect the Advisors channel long-term redemption rate to remain lower than that of the Wholesale channel due to the personal and customized nature in which our financial advisors provide service to our clients. Long-term redemption rates for our Institutional channel were 18.4% and 27.8% for the third quarter of 2012 and 2011, respectively, and 24.7% for the nine month period ended September 30, 2012 compared to 25.5% for the same period in 2011.

Our overall redemption rate of 21.6% for the first nine months of 2012 compares positively to the current year to date industry average of approximately 25%, based on data from the Investment Company Institute.

Table of Contents

Underwriting and Distribution Fee Revenues and Expenses

The following tables summarize our underwriting and distribution fee revenues and expenses segregated by distribution method within the respective Advisors or Wholesale channel:

	Third Quarter 2012
	Advisors			Wholesale		Total
	(in thousands)

Revenue	$	78,160		44,659		122,819
Expenses
Direct	54,246			57,390		111,636
Indirect	25,727			10,045		35,772
	79,973			67,435		147,408
Net Underwriting & Distribution	$	(1,813	)	(22,776	)	(24,589	)

	Third Quarter 2011
	Advisors			Wholesale		Total
	(in thousands)

Revenue	$	70,088		45,698		115,786
Expenses
Direct	49,748			55,502		105,250
Indirect	24,761			8,100		32,861
	74,509			63,602		138,111
Net Underwriting & Distribution	$	(4,421	)	(17,904	)	(22,325	)

	Year to Date 2012
	Advisors			Wholesale		Total
	(in thousands)

Revenue	$	234,619		133,040		367,659
Expenses
Direct	163,735			167,781		331,516
Indirect	78,849			29,596		108,445
	242,584			197,377		439,961
Net Underwriting & Distribution	$	(7,965	)	(64,337	)	(72,302	)

	Year to Date 2011
	Advisors			Wholesale		Total
	(in thousands)

Revenue	$	216,661		137,267		353,928
Expenses
Direct	153,042			170,425		323,467
Indirect	71,276			24,885		96,161
	224,318			195,310		419,628
Net Underwriting & Distribution	$	(7,657	)	(58,043	)	(65,700	)

Table of Contents

Underwriting and distribution revenues earned in the third quarter of 2012 increased $7.0 million, or 6%, compared with the third quarter of 2011 as a result of increased revenues in our Advisors channel of $8.1 million, partially offset by lower revenues in our Wholesale channel of $1.1 million. Revenues from fee-based asset allocation products increased $8.1 million compared to the prior year. Technology fees collected from our advisors of $1.0 million during the third quarter of 2012 resulted in an increase period over period as fees were netted in expense during the third quarter of 2011. Partially offsetting these increases, variable annuity revenues decreased $2.2 million, other front-load product sales revenues decreased $1.0 million and insurance-related revenues decreased $0.8 million.

For the nine months ended September 30, 2012, underwriting and distribution revenues increased $13.7 million, or 4%, compared with the nine months ended September 30, 2011. The increase was comprised of an increase in the Advisors channel of $17.9 million and a $4.2 million decrease in Wholesale channel revenues period over period. Revenues from fee-based asset allocation products increased $24.0 million compared to the prior year. Technology fees collected from our advisors of $2.9 million during the first nine months of 2012 resulted in an increase period over period as fees were netted in expense during 2011. Partially offsetting these increases, variable annuity revenues decreased $7.0 million compared to the prior year, Rule 12b-1 asset-based service and distribution fee revenues decreased $3.4 million, other front-load product sales revenues decreased $3.1 million and financial plan revenues decreased $1.0 million.

Underwriting and distribution expenses increased by $9.3 million, or 7%, compared to the third quarter of 2011. Direct expenses in the Advisors channel increased $4.5 million, or 9%, compared to the third quarter of 2011 due to increased commissions related to the sale of fee-based asset allocation products of $5.9 million and increased Rule 12b-1 asset-based service and distribution expenses of $0.5 million, partially offset by decreased commissions on variable annuity product sales of $1.4 million and decreased commissions on insurance products of $0.5 million. Direct expenses in the Wholesale channel increased by $1.9 million, due to higher dealer compensation paid to third party distributors, increased Rule 12b-1 asset-based service and distribution expenses of $0.9 million and higher wholesaler commissions of $0.5 million from higher sales volumes, partially offset by lower amortization expense of deferred sales commissions of $1.3 million. Indirect expenses increased $2.9 million compared to the quarter ended September 30, 2011 due primarily to increased marketing and business travel expenses.

For the nine months ended September 30, 2012, underwriting and distribution expenses increased by $20.3 million, or 5%, compared to the first nine months of 2011. Direct expenses in the Advisors channel increased $10.7 million, or 7%, compared to 2011 due to increased commissions related to the sale of fee-based asset allocation products of $18.6 million, partly offset by decreased commissions of $4.6 million on variable annuity product sales, decreased Rule 12b-1 asset-based service and distribution expenses of $1.1 million and lower commissions expense related to financial plans of $0.9 million. Direct expenses in the Wholesale channel decreased by $2.6 million, due to lower amortization expense of deferred sales commissions of $1.9 million and decreased Rule 12b-1 asset-based service and distribution expenses of $1.1 million, partially offset by higher dealer compensation paid to third party distributors. For the nine months ended September 30, 2012, indirect expenses increased $12.3 million compared to the same period in 2011 due primarily to increased employee compensation and benefits expenses, pension expenses and marketing costs. The first nine months of 2012 also included costs for an electronic books and records conversion initiative in our Advisors channel, which was substantially complete as of the end of the third quarter.

Shareholder Service Fee Revenue

Shareholder service fee revenue primarily includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees. Transfer agency fees and portfolio accounting and administration fees are asset-based revenues or account-based revenues, while custodian fees from retirement plan accounts are based on the number of client accounts. During the third quarter of 2012, shareholder service fee revenue increased $1.1 million, or 4%, over the third quarter of 2011. Of the total increase, $0.9 million was due to higher asset-based fees quarter over quarter in certain share classes and $0.2 million was attributable to account-based revenues due to a 1% increase in the average number of accounts. For the nine month period ended September 30, 2012, shareholder service fee revenue increased $3.9 million, or 4%, compared to the same period in 2011. Of this increase, $2.9 million is due to higher

Table of Contents

asset-based fees in certain share classes and $1.0 million is attributable to account-based revenues due to a 2% increase in the average number of accounts.

Total Operating Expenses

Operating expenses increased $7.3 million, or 4%, in the third quarter of 2012 compared to the third quarter of 2011, primarily due to increased underwriting and distribution expenses. For the nine months ended September 30, 2012, operating expenses increased $25.9 million, or 4%, compared to the first nine months of 2011, primarily due to increased underwriting and distribution expenses and compensation and related costs, partially offset by lower subadvisory fees. Underwriting and distribution expenses are discussed above.

	Three Months Ended
	September 30,
	2012		2011	Variance
	(in thousands, except percentage data)

Underwriting and distribution	$	147,408	138,111	7	%
Compensation and related costs	42,343		36,105	17	%
General and administrative	15,774		20,979	-25	%
Subadvisory fees	4,921		7,291	-33	%
Depreciation	3,188		3,866	-18	%
Total operating expenses	$	213,634	206,352	4	%

	Nine Months Ended
	September 30,
	2012		2011	Variance
	(in thousands, except percentage data)

Underwriting and distribution	$	439,961	419,628	5	%
Compensation and related costs	128,432		116,618	10	%
General and administrative	57,172		54,920	4	%
Subadvisory fees	16,400		23,684	-31	%
Depreciation	9,876		11,074	-11	%
Total operating expenses	$	651,841	625,924	4	%

Compensation and Related Costs

Compensation and related costs increased $6.2 million, or 17%, compared to the third quarter of 2011. Of the total increase period over period, $3.4 million related to incentive compensation, $1.2 million of which related to higher earnings on portfolio manager deferred compensation plans. The remaining increase was due to higher base salaries and payroll taxes of $1.3 million associated with increased headcount and annual salary increases, and higher pension costs of $0.8 million. Share-based compensation increased $0.8 million due to higher amortization expense associated with our April 2012 and December 2011 grants of nonvested stock compared to grants that became fully vested in 2011 and an increase in non-employee advisor (independent contractor) stock award amortization expense.

For the nine months ended September 30, 2012, compensation and related costs increased $11.8 million, or 10%, compared to the first nine months of 2011, due to higher base salaries and payroll taxes of $4.5 million associated with increased headcount and annual salary increases and higher pension costs of $2.4 million. Share-based compensation increased $2.5 million compared to the first nine months of 2011 due to higher amortization expense associated with our April 2012 and December 2011 grants of nonvested stock compared to grants that became fully vested in 2011 and, to a lesser extent, due to an increase in non-employee advisor stock award amortization expense. Incentive compensation increased $1.8 million compared to the first nine months of 2011, $1.1 million of which related to higher earnings on portfolio manager deferred compensation plans.

Table of Contents

General and Administrative Costs

General and administrative expenses decreased $5.2 million to $15.8 million for the third quarter of 2012 compared to the third quarter of 2011. Included in the third quarter of 2012 was an adjustment of $3.5 million to reflect lower estimated costs of distributing an SEC market timing settlement dating back to 2006, and a reduction in the estimated legal costs related to an ongoing class action suit. These were partially offset by higher consultant fees of $1.0 million. Included in the third quarter of 2011 was a $1.8 million charge related to the write-off of software capitalization costs due to the discontinuation of use of certain software licenses. Excluding these charges in 2012 and 2011, general and administrative costs decreased $0.9 million, partially due to lower costs incurred for our national branding campaign that was launched in the first quarter of 2011.

For the nine months ended September 30, 2012, general and administrative expenses increased $2.3 million compared to the same period in 2011. During the second quarter of 2012, we recorded a pre-tax charge of $5.0 million to reflect the impairment of certain capitalized software development costs. Our ongoing assessment and changes to our enterprise information technology infrastructure and software resulted in the decision to discontinue the usage of certain software. Excluding the $5.0 million charge recorded in 2012 and the items detailed above for 2012 and 2011, general and administrative expenses increased $1.6 million, due to increased dealer services costs of $1.8 million and higher costs for temporary office staff, partially offset by lower costs incurred for our national branding campaign.

Subadvisory Fees

Subadvisory fees represent fees paid to other asset managers for providing advisory services for certain mutual fund portfolios. These expenses reduce our operating margin since we pay out approximately half of our management fee revenue received from subadvised products. Gross management fee revenues for products subadvised by others were $9.8 million for the three months ended September 30, 2012 compared to $14.5 million for the third quarter of 2011 due to a 34% decrease in average net assets. For the nine months ended September 30, 2012, gross management fee revenues for products subadvised by others were $32.6 million compared to $47.0 million for the same period in 2011 due to a 32% decrease in average net assets. Subadvisory expenses followed the same pattern of decrease compared to 2011.

Other Income and Expenses

Investment and Other Income, Interest Expense and Taxes

Investment and other income was $2.6 million for the quarter ended September 30, 2012, compared to a loss of $4.2 million in the same period a year ago. We recorded gains of $1.2 million from the sale of available for sale mutual fund holdings during the third quarter of 2012. In our mutual fund trading portfolio, we recorded gains of $1.8 million during the quarter, compared to losses of $3.4 million in the third quarter of 2011.

For the nine months ended September 30, 2012, investment and other income was $7.9 million compared to a loss of $0.8 million for the nine months ended September 30, 2011. In our mutual fund trading portfolio, we recorded gains of $4.7 million in 2012, compared to losses of $2.6 million in 2011. We also recorded gains of $1.5 million from the sale of available for sale mutual fund holdings during the first nine months of 2012, compared to $1.6 million during the first nine months of 2011. Interest and gains related to debt securities increased by $0.8 million year over year.

Interest expense was $2.8 million in the third quarter of both 2012 and 2011, and $8.5 million and $8.6 million for the nine month periods ended September 30, 2012 and 2011, respectively.

Our effective income tax rate for continuing operations was 34.5% for the third quarter of 2012, compared to 41.2% for the third quarter of 2011. Due to the sale of a subsidiary in 2009, the Company has deferred tax assets related to capital loss carryforwards that are available to offset current and future capital gains. In 2009, a valuation allowance was recorded on a portion of these capital losses due to the limited carryforward period permitted by law on losses of this character. The lower effective tax rate in 2012 as compared to 2011 was attributable in part to this valuation allowance. During the third quarter of 2012, an increase in the fair value of the Company’s trading securities portfolio and realized capital gains on securities classified as available for sale allowed for a release of the valuation allowance, thereby reducing

Table of Contents

income tax expense by $1.0 million. During the third quarter of 2011, a decrease in the fair value of the Company’s trading securities portfolio resulted in an additional valuation allowance, thereby increasing income tax expense by $1.5 million.

The third quarter 2012 and 2011 effective income tax rates for continuing operations, removing the effects of the valuation allowance, would have been 35.7% and 39.0%, respectively. The decrease in the adjusted effective income tax rate is primarily due to the reduction of 2012 tax expense for the expiration of the statute of limitations on uncertain tax positions and adjustments to prior year estimates of tax based upon actual tax return filings. Additionally, the third quarter 2011 tax rate was higher due to a charge for tax positions on which the outcome is uncertain.

Our effective income tax rate for continuing operations was 35.8% for the nine months ended September 30, 2012, as compared to 38.1% for the nine months ended September 30, 2011. Excluding the $2.6 million decrease to the valuation allowance recorded through the statement of income for the nine months ended September 30, 2012, the effective income tax rate would have been 37.0%. Excluding the $0.5 million increase to the valuation allowance recorded to the statement of income for the nine months ended September 30, 2011, the effective income tax rate would have been 37.9%. The decrease in the adjusted effective income tax rate is primarily due to the reduction of 2012 tax expense for the statute of limitations expiration on uncertain tax positions and adjustments to prior year estimates of tax based upon actual tax return filings. Additionally, the 2011 tax rate was higher due to a charge for tax positions on which the outcome is uncertain.

The Company expects its future effective tax rate, exclusive of any increases or reductions to the valuation allowance, state tax incentives, unanticipated state tax legislative changes, and unanticipated fluctuations in earnings to range from 37% to 39%.

Liquidity and Capital Resources

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

· Finance internal growth

· Pay dividends

· Repurchase our stock

Finance Internal Growth

We use cash to fund growth in our distribution channels. Our Wholesale channel, which has a higher cost to gather assets, requires cash outlays for wholesaler commissions and commissions to third parties on deferred load product sales. We continue to invest in our Advisors channel by providing additional support to our advisors through wholesaling efforts and enhanced technology tools.

Pay Dividends

We paid quarterly dividends on our common stock that resulted in financing cash outflows of $64.5 million and $51.7 million for the first nine months of 2012 and 2011, respectively. The Board approved an increase in the quarterly dividend on our common stock from $0.20 per share to $0.25 per share beginning with our fourth quarter 2011 dividend, paid on February 1, 2012.

Repurchase Our Stock

We repurchased 1,158,720 shares and 1,609,551 shares of our common stock in the open market or privately during the nine months ended September 30, 2012 and 2011, respectively, resulting in cash outflows of $36.0 million and $57.1 million, respectively.

Operating Cash Flows

Cash from operations, our primary source of funds, decreased $88.3 million for the nine months ended September 30, 2012 compared to the previous year. The decrease is primarily due to net purchases of trading securities in 2012 compared to significant net sales of trading securities in 2011. The current year includes a non-cash write-down of impaired assets of $42.4 million.

Table of Contents

During the first nine months of 2012, we contributed $15.0 million to our Pension Plan. We do not expect to make additional contributions for the remainder of 2012.

Investing Cash Flows

Investing activities consist primarily of the purchase, sale and maturities of available for sale investment securities, as well as capital expenditures. We expect our 2012 capital expenditures to be in the range of $12.0 to $15.0 million.

Financing Cash Flows

As noted previously, dividends and stock repurchases accounted for a majority of our financing cash outflows in the first nine months of 2012 and 2011.

Future Capital Requirements

Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund its short-term operating and capital requirements. Expected short-term uses of cash include dividend payments, interest payments on outstanding debt, income tax payments, seed money for new investment products, share repurchases, payment of deferred commissions to our financial advisors and third parties, capital expenditures and home office leasehold improvements, and could include strategic acquisitions.

Expected long-term capital requirements include indebtedness, operating leases and purchase obligations, and potential recognition of tax liabilities. Other possible long-term discretionary uses of cash could include capital expenditures for enhancement of technology infrastructure and home office expansion, strategic acquisitions, payment of dividends, income tax payments, seed money for new investment products, payment of upfront fund commissions for Class B shares, Class C shares and certain fee-based asset allocation products, pension funding and repurchases of our common stock.

Critical Accounting Policies and Estimates

Management believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company’s critical accounting policies and estimates are disclosed in the “Critical Accounting Policies and Estimates” section of our 2011 Form 10-K.

Table of Contents

Supplemental Information

	Third		Third				Year to		Year to
	Quarter		Quarter				Date		Date
	2012		2011		Change		2012		2011		Change
Redemption rates - long term (annualized)
Advisors	9.7	%	10.0	%			9.7	%	9.9	%
Wholesale	26.6	%	31.0	%			30.0	%	27.6	%
Institutional	18.4	%	27.8	%			24.7	%	25.5	%
Total	19.3	%	22.9	%			21.6	%	20.7	%

Gross revenue per advisor (000’s)	41.4		37.6		10.1	%	123.9		117.0		5.9	%

Number of financial advisors	1,753		1,758		-0.3	%
Average number of financial advisors	1,758		1,754		0.2	%	1,770		1,752		1.0	%

Number of shareholder accounts (000’s)	4,179		4,118		1.5	%

Number of shareholders	792,894		826,563		-4.1	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has had no significant changes in its Quantitative and Qualitative Disclosures About Market Risk from that previously reported in the Company’s 2011 Form 10-K.

Item 4. Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report, have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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 were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

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 the 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. Information required to be reported under this Part II., Item 1. has been previously disclosed in Note 12 to the consolidated financial statements in Part I. above and is incorporated herein by reference.

Item 1A. Risk Factors

The Company has had no material changes to its Risk Factors from those previously reported in the Company’s 2011 Form 10-K.

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

The following table sets forth certain information about the shares of common stock we repurchased during the third quarter of 2012.

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program

July 1 - July 31	41,318	$	28.27	41,318	n/a	(1)
August 1 - August 31	50,648	29.29		50,648	n/a	(1)
September 1 - September 30	121,400	33.19		121,400	n/a	(1)

Total	213,366	$	31.31	213,366

(1) On August 31, 1998, we announced that our Board of Directors approved a program to repurchase shares of our 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 common stock or (ii) $50 million of our common stock. We may repurchase our common stock 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. Our Board of Directors reviewed and ratified the stock repurchase program in October 2012. During the third quarter of 2012, all stock repurchases were made pursuant to the repurchase program and 1,966 shares, reflected in the table above, were purchased in connection with funding employee income tax withholding obligations arising from the vesting of nonvested shares.

Table of Contents

Item 5. Other Information.

The Company provides the following disclosures in lieu of the filing of a Current Report on Form 8-K pursuant to Item 2.06, “Material Impairments” and Item 8.01, “Other Events.”

On October 29, 2012, the Company entered into a Common Interest Purchase Agreement (the “Purchase Agreement”) with First Allied Holdings Inc. (“First Allied”), providing for the sale of Legend Group Holdings, LLC (the “Sale”). The Company is selling its wholly-owned subsidiary, Legend Group Holdings, LLC (“Legend”), which is the parent of four subsidiaries: Legend Equities Corporation, Legend Advisory Corporation, The Legend Group, Inc. and Advisory Services Corporation. Legend Equities Corporation further owns all of the outstanding common stock of LEC Insurance Agency, Inc.

Based on the consideration the Company expects to receive upon closing of the Sale, which is less than the carrying value of the net assets to be sold, management concluded, in discussions with the Company’s Audit Committee on October 29, 2012, that a material impairment was required. The Company recorded an estimated non-cash impairment charge of $42.4 million. This impairment charge is reflected in income (loss) from discontinued operations on the statement of income.

Assets and liabilities of Legend are reflected in the unaudited consolidated balance sheet as held for sale as of September 30, 2012. Prior year amounts have been reclassified for comparative purposes to conform to current year presentation. The operational results of Legend have been presented as discontinued operations in the unaudited consolidated financial statements for the three and nine months ended September 30, 2012, with comparative periods reclassified to conform to current year presentation. For income tax purposes, the sale will result in a $48.3 million capital loss that may only be utilized to offset future capital gains. Due to the character of the loss and the limited carryforward period permitted by law, the Company may not realize the full tax benefit of the capital loss.

Item 6. Exhibits

10.1		Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated.*

10.2		Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as amended and restated.*

10.3		Form of Restricted Stock Award Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated.*

10.4		Form of Restricted Stock Award Agreement for awards pursuant to the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as amended and restated.*

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 30, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Notes to the Unaudited Consolidated Financial Statements, tagged in detail.

*Indicates management contract or compensatory plan, contract or arrangement.

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 2nd day of November 2012.

	WADDELL & REED FINANCIAL, INC.

	By:	/s/ Henry J. Herrmann
		Chief Executive Officer, Chairman of the Board and Director
		(Principal Executive Officer)


	By:	/s/ Daniel P. Connealy
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)


	By:	/s/ Brent K. Bloss
		Senior Vice President - Finance and Treasurer
		(Principal Accounting Officer)

Exhibit 10.1

WADDELL & REED FINANCIAL, INC.

1998 EXECUTIVE STOCK AWARD PLAN

As Amended and Restated

Waddell & Reed Financial, Inc. previously established the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Award Plan (formerly named the Waddell & Reed Financial, Inc. 1998 Executive Deferred Compensation Stock Option Plan), as amended effective December 12, 2002 and as further amended effective on each of March 11, 2003 (which March 11, 2003 amendment was submitted to and approved by the Company’s stockholders at the Company’s 2003 Annual Meeting of Stockholders), January 1, 2004, October 14, 2004 and October 19, 2005 (as amended, the “Original Plan”). Pursuant to the powers reserved in Section 8.1 in the Original Plan, the Original Plan is amended and restated effective October 18, 2012 as follows (the Original Plan, as amended and restated the “Plan”).

ARTICLE 1
Purposes of the Plan

Section 1.1. Purposes. The purposes of the Plan are to promote the long-term growth of the Company by providing a vehicle for Eligible Executives (as defined below) to increase their proprietary interest in the Company and to attract and retain highly qualified Eligible Executives.

ARTICLE 2
Definitions

Section 2.1. Definitions. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:

“Acquisition” has the meaning assigned such term in Section 9.3 .

“Acquisition Consideration” means the kind and amount of shares of capital stock of the surviving or new corporation, cash, securities, evidence of indebtedness, other property or any combination thereof receivable in respect of one Share upon consummation of an Acquisition.

“Affiliate” means (a) any corporation (other than a Subsidiary), partnership, joint venture or any other entity in which the Company owns, directly or indirectly, at least a ten percent beneficial ownership interest, and (b) the Company’s parent company, if any.

“Annual Bonus” means the annual cash bonus payable by the Company to an Eligible Executive for services to the Company or any of its Affiliates, as such amount may be determined from year to year.

“Annual SORP Exercise Date” has the meaning assigned such term in Section 6.5 .

“Award” means the grant of an Option or Restricted Stock to a Participant pursuant to the terms, conditions and limitations that the Committee may establish in order to fulfill the objectives of the Plan.

“Award Grant Date” means the date on which an Award of Options or Restricted Stock, as the context applies, is made under the Plan which, unless the Committee determines otherwise, shall be not later than April 15 th of the calendar year following the year in which Salary or Annual Bonus converted pursuant to a Conversion Election Form is earned.

“Award Agreement” means a written agreement by and between the Company and a Participant evidencing an award of Options or Restricted Stock, as applicable, under the Plan.

“Awardee” means a Participant to whom an outstanding Award has been granted or, in the event of such Participant’s death prior to the expiration of an Option or the lapse of restrictions encumbering Restricted Stock, such Participant’s Beneficiary.

“Beneficiary” means any person or persons designated by a Participant, in accordance with procedures established by the Committee or Plan Administrator, to receive benefits hereunder in the event of the Participant’s death. If any Participant fails to designate a Beneficiary or designates a Beneficiary who fails to survive the Participant, the Beneficiary shall be the Participant’s surviving spouse, or, if none, the Participant’s surviving descendants (who shall take per stirpes) and if there are no surviving descendants, the Beneficiary shall be the Participant’s estate.

“Board” means the Board of Directors of the Company.

“Bonus Conversion Election Date” means the date established by the Plan as the date by which an Eligible Executive must submit a valid Bonus Conversion Election Form to the Plan Administrator in order to convert Annual Bonus to an Award under the Plan for a calendar year. Unless otherwise determined by the Committee, for each calendar year, the Bonus Conversion Election Date is June 30 of the calendar year for which the Annual Bonus is to be earned; provided, however, that if an executive officer becomes an Eligible Executive on or after June 1 of any calendar year, such election may be made within 30 days after the date on which such executive officer becomes an Eligible Executive.

“Bonus Conversion Election Form” means a form, substantially in the form attached hereto as Exhibit A , pursuant to which a Participant elects to convert Annual Bonus to an Award pursuant to Section 5.1 .

“Business Day” means a day on which the New York Stock Exchange or other principal national securities exchange or over-the-counter market on which the Shares are then traded is open for business.

“Change in Control” means the occurrence of any of the following:

(a) when any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or a Subsidiary thereof or any Company employee benefit plan), is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities;

(b) the effective date of any transaction or event relating to the Company that is required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of the Exchange Act;

(c) when, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board, cease for any reason other than death to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds of the directors at the beginning of such period; or

(d) the effective date of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary thereof through the purchase of assets, by merger, or otherwise.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto.

“Committee” means the Compensation Committee of the Board.

“Company” means Waddell & Reed Financial, Inc., a Delaware corporation, and its successors.

“Conversion Election Form” means a Bonus Conversion Election Form and/or a Salary Conversion Election Form, as the context requires.

“Covered Employee” means (a) the chief executive officer of the Company, and (b) any person designated by the Committee, at the time of grant of Performance Awards, who the Committee believes is likely to be a “covered employee” (within the meaning of Section 162(m)(3) of the Code) with respect to the fiscal year during which the Performance Award is granted or in the foreseeable future.

“Disability” means total and permanent disability as determined under the Company’s long-term disability program, whether or not the Participant is covered under such program. If no such program is in effect, the Disability of a Participant shall be determined in good faith by the Board (excluding the Participant, if applicable).

“Eligible Executive” means an executive officer of the Company or any of its Affiliates, as may be selected by the Chairman of the Board or the Committee or its designee from year to year.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means, unless otherwise determined in good faith by the Committee or required by applicable law, as of any given date, the closing sale price of a Share on such date on the New York Stock Exchange or other principal national securities exchange or over-the-counter market on which the Shares are then traded or, if there is no sale on that day, then on the last previous Business Day on which a sale was reported.

“Option” means an option to purchase Shares granted pursuant to Article 6 . Options granted under the Plan are not incentive stock options within the meaning of Section 422 of the Code.

“Participant” means any Eligible Executive who is participating in the Plan.

“Performance Award” means any Option or award of Restricted Stock granted under the Plan to a Covered Employee that the Committee intends to be performance-based compensation under Section 162(m)(4)(C) of the Code.

“Plan” means the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as Amended and Restated, as set forth herein and as may be amended, modified or supplemented from time to time.

“Plan Administrator” means the Committee or its delegee of administrative duties under the Plan pursuant to Section 3.2 .

“Repricing” has the meaning assigned to such term in Section 8.1 .

“Restricted Stock” means Shares that are subject to certain restrictions and/or a risk of forfeiture granted pursuant to Article 6 .

“Salary” means the salary payable by the Company to an Eligible Executive for services to the Company or any of its Affiliates, as such amount may be changed from time to time.

“Salary Conversion Election Date” means the date established by the Plan as the date by which an Eligible Executive must submit a valid Salary Conversion Election Form to the Plan Administrator in order to convert Salary to an Award under the Plan for a calendar year. Unless otherwise determined by the Committee, for each calendar year in which Salary will be earned, the Salary Conversion Election Date is the last day of the preceding calendar year; provided, however, that in the case of an executive officer who becomes an Eligible Executive on or after January 1 of the calendar year in which Salary that is to be converted into an Award is earned, such election may be made within 30 days after the date on which such executive officer becomes an Eligible Executive.

“Salary Conversion Election Form” means a form, substantially in the form attached hereto as Exhibit B , pursuant to which a Participant elects to convert Salary to an Award pursuant to Section 5.1 .

“Shares” means shares of the Company’s Class A common stock, par value $.01.

“SORP” has the meaning assigned such term in Section 6.5 .

“SORP Option” has the meaning assigned such term in Section 6.5 .

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last

corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

ARTICLE 3
Administration of the Plan

Section 3.1. Administrator of the Plan. The Plan shall be administered by the Committee, except as may be delegated pursuant to Section 3.2 . To the extent required by Section 162(m)(4)(C) of the Code, only outside directors shall administer the Plan with respect to Covered Employees.

Section 3.2. Authority of Committee. The Committee shall have full power and authority to (a) interpret and construe the Plan and adopt such rules and regulations as it shall deem necessary and advisable to implement and administer the Plan, and (b) designate persons other than members of the Committee or the Board to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee’s business judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. Subject to Section 3.1 , the Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable.

Section 3.3. Effect of Committee Determinations. No member of the Committee or the Board or the Plan Administrator shall be personally liable for any action or determination made in good faith with respect to the Plan or any Award or to any settlement of any dispute between a Participant and the Company. Any decision or action taken by the Committee, the Board or the Plan Administrator with respect to an Award or the administration or interpretation of the Plan shall be conclusive and binding upon all persons.

ARTICLE 4
Participation

Section 4.1. Election to Participate. The Chairman of the Board or the Committee or its designee shall designate each year those executive officers who shall be Eligible Executives for the coming year. An Eligible Executive may participate in the Plan by delivering to the Plan Administrator a properly completed and signed (a) Salary Conversion Election Form on or before the Salary Conversion Election Date, and/or (b) Bonus Conversion Election Form on or before the Bonus Conversion Election Date. An Eligible Executive’s participation in the Plan will be effective as of the date the Plan Administrator receives the Eligible Executive’s Salary or Bonus Conversion Election Form. An Eligible Executive shall not be entitled to any benefit hereunder unless such Eligible Executive has properly completed a Conversion Election Form.

Section 4.2. Irrevocable Election. A Participant may not revoke or change his or her Conversion Election Form for a calendar year.

Section 4.3. No Right to Continue as an Employee. Nothing contained in the Plan shall be deemed to give any Eligible Executive the right to be retained as an employee of the Company or any of its Affiliates.

ARTICLE 5
Plan Benefits

Section 5.1. Conversion of Annual Bonus or Salary. An Eligible Executive may elect to convert up to 100% of his or her Annual Bonus and/or Salary (in increments of 10% or $10,000) to Awards in accordance with the terms of the Plan.

(a) Time of Conversion Election. An Eligible Executive who wishes to convert Salary for a calendar year to an Award pursuant to Article 6 must irrevocably elect to do so on or prior to the Salary Conversion Election Date for such calendar year, by delivering a valid Salary Conversion Election Form to the Plan Administrator. The Salary Conversion Election Form shall indicate the percentage or dollar amount of Salary to be converted to Awards. An Eligible Executive who wishes to convert Annual Bonus for a calendar year to an Award pursuant to Article 6 must irrevocably elect to do so on or prior to the Bonus Conversion Election Date for such calendar year, by delivering a valid Bonus Conversion Election Form to the Plan Administrator. The Bonus Conversion Election Form shall indicate the percentage or dollar amount of Annual Bonus to be converted to an Award.

(b) Responsibility for Investment Choices. Each Participant is solely responsible for any decision to convert Annual Bonus and/or Salary to Awards under the Plan and accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to convert.

Section 5.2. Award Converted from Annual Bonus at Committee Direction . The Committee, in its sole discretion, may direct that all or any portion of the Annual Bonus that would otherwise be payable in cash to a Participant, be converted into Awards pursuant to Article 6 .

ARTICLE 6
Terms and Conditions of Awards

Subject to Article 6A , if a Participant remains employed through the Award Grant Date for Salary or Annual Bonus converted pursuant to Section 5.1 or Section 5.2 , the Participant shall be granted Awards subject to the following terms and conditions:

Section 6.1. Exercise Price of Options. The exercise price per Share, if any, under each Option granted pursuant to this Article 6 shall be indicated in the Award Agreement. The exercise price per Share of any Option granted hereunder shall be 100% of the Fair Market Value per Share on the Award Grant Date.

Section 6.2 Number of Shares Subject to Awards .

(a) Number of Options. The number of Shares subject to an Option granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:

A = the dollar amount which the Participant has elected to convert to Options pursuant to Section 5.1 ; and

B = the per Share value of an Option on the Award Grant Date, as determined by the Committee using an option valuation model selected by the Committee in its discretion (such value to be expressed as a percentage of the Fair Market Value per Share on the Award Grant Date).

In determining the number of Shares subject to an Option, (i) the Committee may designate the assumptions to be used in the selected option valuation model, and (ii) any fraction of a Share will be rounded down to the next whole number of Shares. The maximum number of shares with respect to which Options may be granted to a Covered Employee in any calendar year is 750,000.

(b) Number of Shares of Restricted Stock . The number of Shares subject to an Award of Restricted Stock granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:

A = the dollar amount which the Participant has elected to convert to Restricted Stock pursuant to Section 5.1 ; and

B = the Fair Market Value of a Share on the Award Grant Date.

In determining the number of Shares subject to an Award of Restricted Stock, any fraction of a Share will be rounded down to the next whole number of Shares.

Effective January 1, 2004, a Participant will only be entitled to convert Salary and/or Annual Bonus into Restricted Stock.

Section 6.3 Term of Awards .

(a) Exercise of Options. Each Option shall be first exercisable, cumulatively, as to 10% of the total Shares subject to the Option commencing on each of the first through tenth annual anniversaries of the Award Grant Date. Notwithstanding the foregoing, the exercisability of any Option held by a Covered Employee shall be deferred to the extent that the Committee, in its discretion, determines that current exercise of the Option would cause loss of the Company’s tax deduction pursuant to Section 162(m) of the Code. In no event shall such deferral continue beyond the first day of the calendar year after the Awardee ceases to be a Covered Employee. An Awardee’s death, Disability, retirement or other termination of employment shall not shorten the term of any outstanding Option. In no event shall the period of time over which the Option may be exercised exceed the longer of (i) 11 years from the Award Grant Date, or (ii) the 30th day of the calendar year immediately following the year in which the Awardee ceased to be a Covered Employee. An Option, or portion thereof, may be exercised in whole or in part only with respect to whole Shares. Options may be exercised in whole or in part at any time during the exercise period by giving written notice of the exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the exercise price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for “cashless exercise”). Payment in full or in part may also be made in the form of unrestricted Shares already owned by the Awardee (based on the Fair Market Value of the Shares on the date

the Option is exercised). An Awardee shall have rights to dividends and other stockholder rights with respect to Shares subject to an Option only after the Awardee has given written notice of the exercise and has paid in full for such Shares.

(b) Terms of Restricted Stock Awards.

(i) Grant and Restrictions . Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), or in such installments or otherwise, as the Committee may determine at the Award Grant Date or thereafter. Except to the extent restricted under the terms of the Plan or any related Award Agreement, an Awardee granted Restricted Stock shall have all of the rights of a stockholder with respect to such Restricted Stock, including the right to vote the Restricted Stock and the right to receive dividends thereon. During the applicable restricted period, subject to Section 6.6 , the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the Awardee.

(ii) Forfeiture . Subject to Section 6.4 , upon termination of employment, Restricted Stock that is at the time of such termination subject to restrictions shall be forfeited and reacquired by the Company.

(iii) Book-Entry Accounts; Certificates for Restricted Stock . An account for each Awardee who is awarded Restricted Stock shall be maintained by the Company’s transfer agent or such other administrator designated by the Committee for the deposit of such Restricted Stock, or, in the sole discretion of the Committee, each Awardee may be issued a stock certificate registered in the name of the Awardee with respect to such Restricted Stock. The Committee shall specify that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to the Restricted Stock, that the Company or transfer agent retain physical possession of such certificates, and that the Awardee deliver a stock power to the Company or transfer agent, as applicable, endorsed in blank, relating to the Restricted Stock. Any such legend shall be substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as Amended and Restated (the “Plan”) and a Restricted Stock Award Agreement entered into between the registered owner and Waddell & Reed Financial, Inc. (the “Agreement”). Copies of the Plan and Agreement are on file in the offices of Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.”

(iv) Dividends and Splits . Unless otherwise determined by the Committee, Shares distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Shares or other property has been distributed.

Section 6.4 Accelerated Exercisability and Lapse of Restrictions . Notwithstanding the normal exercisability schedule and forfeiture provisions set forth in Sections 6.3(a) and 6.3(b)(ii) , any and all outstanding Options shall become immediately exercisable, and restrictions on any Award of Restricted Stock shall lapse and the Shares subject to such Award shall be deemed fully vested and nonforfeitable, upon the first to occur of (a) the death of the Awardee, (b) the Disability of the Awardee, (c) the occurrence of a Change in Control, (d) the determination by the Committee that a particular Award, in whole or in part, shall become fully exercisable and/or nonforfeitable, or (e) as otherwise provided by the Committee by rule or regulation or in any Award Agreement, or as determined in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock shall be waived in whole or in part in the event of terminations resulting from specified causes. Upon acceleration, an Option will remain exercisable for the remainder of its original term.

Section 6.5 Award Agreement . Each Award granted under the Plan shall be evidenced by an Award Agreement which shall be executed by an authorized officer of the Company. The Award Agreement shall contain provisions regarding (a) the number of Shares subject to the Award, (b) the exercise price per Share, if any, of the Award and the means of payment therefor, (c) the term of the Award, and (d) such other terms and conditions not inconsistent with the Plan as may be determined from time to time by the Committee. The Committee, in its discretion, may include in the grant of any Option under the Plan, a stock option restoration program (“SORP”) provision. A SORP provision shall provide, without limitation, that, if payment of the exercise price of an Option is made in the form of Shares, and the exercise of such Option occurs on the Annual SORP Exercise Date, an additional option to purchase Shares (a “SORP Option”) will automatically be granted to the Awardee effective as of the Annual SORP Exercise Date. A SORP Option shall (i) have an exercise price equal to 100% of the Fair Market Value of the Shares on the Annual SORP Exercise Date, (ii) have a term of no more than the later of (1) the term equal to that of the originally exercised Option giving rise to the SORP Option, not to exceed a maximum term of ten years and two days from the issuance date of the SORP Option (subject to any forfeiture provision or shorter limitation on exercise required under the Plan) or (2) the 30 th day of the calendar year immediately following the year in which the Awardee ceases to be a Covered Employee, (iii) have an initial vesting date no earlier than six months after the date of its issuance, and (iv) cover a number of Shares equal to the number of Shares used to pay the exercise price of the originally exercised Option, plus the number of Shares (if any) withheld for income taxes and employment taxes (plus any selling commissions) with respect to such original exercise. “Annual SORP Exercise Date” shall mean August 1, or if August 1 is not a Business Day, “Annual SORP Exercise Date” shall mean the next succeeding Business Day. Notwithstanding the foregoing, the Committee may delay the Annual SORP Exercise Date to the extent it determines necessary to comply with regulatory or administrative requirements.

Section 6.6 Transferability of Awards . No Award shall be assignable or transferable by the Awardee; provided, however, that an Award Agreement may provide that Options are transferable by will or the laws of descent and distribution; and provided, further, that the Committee may (but need not) permit other transfers of an Award where the Committee concludes that such transferability (a) does not result in accelerated taxation, and (b) is otherwise appropriate and desirable, taking into account any state or Federal securities laws applicable to Awards and the purposes of the Plan.

ARTICLE 6A
Performance Awards

Section 6A.1. Performance Awards. The Committee may grant an Award to a Covered Employee that is either a Performance Award or not a Performance Award.

Section 6A.2. Individual Award Limitations. In each calendar year during any part of which the Plan is in effect, an Eligible Executive (who may also be a Covered Employee) may not be granted Awards, Performance Awards or otherwise, that have, in the aggregate, more than 750,000 “points,” with each Option Award having one “point” for each Share with respect thereto, and each Award of Restricted Stock having three “points” with respect to each Share. For illustrative purposes, a grant of an Option for ten Shares has ten “points,” and a grant of ten Shares of Restricted Stock has 30 “points.” If an Award is canceled, the canceled Award continues to be counted against the maximum number of Shares that may be granted to the Eligible Executive under the Plan.

Section 6A.3. Performance Goals for Performance Awards . Each Performance Award shall be structured so as to qualify as “performance-based compensation” under Section 162(m)(4)(C) of the Code.

(a) Option Performance Awards . The exercise price of a Performance Award that is an Option Award shall not be less than 100% of the Fair Market Value of the Shares on the date of grant of such Performance Award.

(b) Restricted Stock Performance Awards . The grant, vesting and/or settlement of a Performance Award that is a Restricted Stock Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 6A.3 .

(i) Performance Goals Generally. The performance goals for Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each such criteria, as specified by the Committee consistent with this Section 6A.3 . Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the level or levels of performance targeted by the Committee result in the achievement of such performance goals being “substantially uncertain.” The Committee may condition the grant, exercise, vesting and/or settlement of any Performance Award upon achievement of any one or more performance goals. Performance goals may differ for Performance Awards granted to any one Eligible Executive or to different Eligible Executives.

(ii) Business Criteria. Any or all of the following business criteria (including or excluding extraordinary and/or non-recurring items to be determined by the Committee in advance) for the Company on a consolidated basis, and/or for specified Subsidiaries or business or geographical units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for Performance Awards: (1) earnings per share; (2) increase in revenues; (3) increase in cash flow; (4) increase in cash flow return; (5) return on net assets;

(6) return on assets; (7) return on investment; (8) return on capital; (9) return on equity; (10) economic value added; (11) operating margin; (12) contribution margin; (13) net income; (14) pre-tax earnings; (15) pre-tax earnings before interest, depreciation and amortization; (16) pre-tax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (17) operating income; (18) total stockholder return; (19) debt reduction; and (20) any of the above goals determined on an absolute or relative basis, or as adjusted in any manner which may be determined in the discretion of the Committee, or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of competitor companies, including the group selected by the Company for purposes of any stock performance graph contained in the proxy statement for the Company’s most recent annual meeting of stockholders.

(iii) Performance Period; Timing for Establishing Performance Goals. Achievement of performance goals shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days (or, for performance periods of less than 1 year, the passage of 25% of the performance period) after the beginning of any performance period applicable to such Performance Award, or at such other date as may be required or permitted for “performance-based compensation” under Section 162(m) of the Code.

(iv) Settlement of Performance Awards; Other Terms. After the end of each performance period, the Committee shall determine the amount, if any, of such Performance Award payable to the Covered Employee. Settlement of such Performance Awards shall be in cash, Shares, or other awards or property, as determined in the sole discretion of the Committee. The Committee may, in its discretion, reduce the amount of any Performance Award to be settled upon achievement of the associated performance goals, but may not exercise discretion to increase any such amount payable to a Covered Employee with respect to such Performance Award.

Section 6A.4. General. The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of a Performance Award that is not mandatory under the Plan; provided, however, that notwithstanding any other provision of the Plan, the Committee shall not have any discretion to accelerate, waive or modify any term or condition of an Award that is intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code if such discretion would cause such Performance Award not to so qualify.

Section 6A.5. Written Determinations. All determinations by the Committee as to the establishment of performance goals, the amount of any potential individual Performance Awards, and the achievement of performance goals relating to Performance Awards that are Restricted Stock Awards, shall be made in writing in the case of any award intended to qualify under Section 162(m) of the Code. The Committee may not delegate any responsibility relating to Performance Awards. The determination as to whether any performance goal, with respect to any Performance Award, has been satisfied shall be made prior to the payment of any compensation relating to a Performance Award.

Section 6A.6. Performance Awards under Section 162(m) of the Code. It is the intent of the Company that Performance Awards granted to persons who are or likely will become “covered employees” (within the meaning of Section 162(m) of the Code) shall constitute “performance-based compensation” within the meaning of Section 162(m) of the Code. Accordingly, the terms of this Article 6A , including the definition of “Covered Employee” and other terms used herein, shall be interpreted in a manner consistent with Section 162(m) of the Code. If any provision of the Plan as in effect on the date of adoption or any agreements relating to Performance Awards that are designated as intended to comply with Section 162(m) of the Code do not comply or are inconsistent with the requirements of Section 162(m) of the Code, then such provisions shall be construed or deemed amended to the extent necessary to conform to such requirements.

Section 6A.7. Conflicts Among Plan Provisions. To the extent this Article 6A conflicts with another provision of the Plan, this Article 6A shall control.

ARTICLE 7
Shares Subject to the Plan

Section 7.1 Shares Subject to the Plan . Subject to adjustment as provided in Article 9 , the total number of Shares reserved and available for issuance in connection with Awards under the Plan shall not exceed 3,750,000 Shares. Shares delivered under the Plan may be newly issued Shares or previously issued and reacquired Shares. To the extent that Shares subject to an outstanding Award are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such Award or by reason of the delivery of Shares to pay all or a portion of the exercise price of an Award, then such Shares shall again be available for issuance under the Plan, except that if such Shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such Shares shall be available exclusively for Awards to Participants who are not subject to such limitation.

In the case of Options exercised with payment in Shares under a SORP provision, the number of Shares transferred by the Awardee in payment of the exercise price plus the number of Shares withheld for income and employment taxes (plus any selling commissions) on such exercise will be netted against the number of Shares issued to the Awardee in the exercise, and only the net number shall be charged against the 3,750,000 limitation set forth above.

ARTICLE 8
Amendment, Suspension and Termination

Section 8.1. Amendment, Suspension and Termination. The Board may amend, suspend or terminate the Plan or any Award Agreement at any time; provided, however, that the Board may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations, or securities exchange listing standards, and no such amendment, modification or termination shall adversely affect any outstanding Awards without the consent of the Participant. Notwithstanding the foregoing, a Repricing (as defined below) is prohibited without prior stockholder approval. For purposes of the Plan, “Repricing” means any of the following or any other action that has the same purpose and effect: (a) lowering the

exercise price of an outstanding Option after it is granted or (b) canceling an outstanding Option at a time when its exercise or purchase price exceeds the then Fair Market Value of the Shares underlying such outstanding award, in exchange for another award or a cash payment, unless the cancellation and exchange occurs in connection with a merger, amalgamation, consolidation, sale of substantially all the Company’s assets, acquisition, spin-off or other similar corporate transaction.

ARTICLE 9
Adjustment Provisions

Section 9.1 Change in Corporate Structure Affecting Shares . If the Company shall at any time change the number of issued Shares without new consideration to the Company (such as by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Shares) or make a distribution of cash or property which has a substantial impact on the value of issued Shares, the total number of Shares reserved for issuance under the Plan shall be appropriately adjusted and the exercise price per Share, if any, and the number of Shares underlying each outstanding Award shall be adjusted so that the aggregate consideration payable to the Company and the value of each such Award shall not be changed. In addition, the aggregate number of Shares available for issuance to any Participant pursuant to Section 6.2 shall be adjusted to take into account any change in corporate structure affecting Shares. Adjustments pursuant to this Section 9.1 shall not be made to the extent the Plan has been amended to reflect any adjustment contemplated in this Section 9.1 .

Section 9.2 Certain Reorganizations . Notwithstanding any other provision of the Plan, and without affecting the number of Shares reserved or available hereunder, the Committee shall authorize the issuance, continuation or assumption of outstanding Awards or provide for other equitable adjustments after changes in the Shares resulting from any merger, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence in which the Company is the continuing or surviving corporation, upon such terms and conditions as it may deem necessary to preserve Awardees’ rights under the Plan.

Section 9.3 Acquisitions . In the case of any sale of assets, merger, consolidation or combination of the Company with or into another entity, other than a transaction in which the Company is the continuing or surviving corporation and which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an “Acquisition”), any Awardee who holds an outstanding Award shall have the right (subject to the provisions of the Plan and any limitation applicable to the Award) thereafter and during the term of the Award, to receive upon exercise or vesting thereof, the Acquisition Consideration receivable upon the Acquisition by a holder of the number of Shares which would have been obtained upon exercise of the Option or portion thereof or vesting of all or a portion of the Restricted Stock subject to an Award, as the case may be, immediately prior to the Acquisition; provided, however, the Committee, in its sole discretion, may settle the value of any Award on the basis of the Acquisition Consideration as of the date the Acquisition occurs, or such other date as the Committee may determine prior to the Acquisition, in cash, stock or other property, or any combination thereof. To the extent any such settlement made in the sole discretion of the Committee is made in Shares, such Shares will be deemed to have been distributed under the Plan.

ARTICLE 10
Miscellaneous

Section 10.1. Withholding. If any Award granted under the Plan is or becomes subject to any withholding requirement, the Committee may require the Awardee to remit such withholding as a condition to exercising an Option or any portion thereof, or to receiving any Shares underlying an Award of Restricted Stock or the lapsing of restrictions thereon.

Section 10.2. Compliance with SEC Regulations. All grants, vesting, lapsing of restrictions, and exercises of Awards under the Plan shall be executed in accordance with the requirements of Section 16 of the Exchange Act, and any regulations promulgated thereunder, to the extent applicable. To the extent that any of the provisions contained herein do not conform with Rule 16b-3 of the Exchange Act or any amendments thereto or any successor regulations, then the Committee may make such modifications so as to conform the Plan and any Awards granted thereunder to the requirements of Rule 16b-3.

Section 10.3. Validity. In the event that any provision of the Plan or any related Award Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan or any related Award Agreement.

Section 10.4. Inurement of Rights and Obligations. The rights and obligations under the Plan and any related agreements shall inure to the benefit of, and shall be binding upon the Company, its successors and assigns, and the Eligible Executives and their beneficiaries.

Section 10.5. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

Section 10.6. Governing Law. The Plan shall be construed, governed and enforced in accordance with the laws of the State of Delaware, except as such laws are preempted by applicable Federal law.

Section 10.7. Tax Status of Plan. The Plan is not intended to be a “nonqualified deferred compensation plan” under Section 409A of the Code and shall be construed and administered accordingly. If any term or provision contained herein would otherwise cause the Plan to be characterized as a “nonqualified deferred compensation plan” under Section 409A of the Code, then, without further action by the Company, such term or provision shall automatically be modified to the extent necessary to avoid such characterization.

EXHIBIT A

Bonus Conversion Election Form

for Calendar Year 20

Election to Convert Annual Bonus to Restricted Stock pursuant to the

Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan

As Amended and Restated

The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, As Amended and Restated (the “Plan”) with respect to the undersigned’s Annual Bonus as an executive officer of Waddell & Reed Financial, Inc. (the “Company”) or its Affiliates to be earned by the undersigned during the calendar year identified above (“Current Year Bonus”). Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.

I hereby irrevocably elect to convert into an Award of Restricted Stock pursuant to the Plan for the year identified above, % [indicate any percentage up to 100%, in 10% increments] or $ [indicate any dollar amount in increments of $10,000] of my Current Year Bonus.

Executed to be effective as of , 20 .


	(Signature)


	(Print Name)

A-1

EXHIBIT B

Salary Conversion Election Form

for Calendar Year 20

Election to Convert Salary to Restricted Stock Pursuant to the

Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan

As Amended and Restated

The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, As Amended and Restated (the “Plan”) with respect to the undersigned’s Salary as an executive officer of Waddell & Reed Financial, Inc. (the “Company”) or its Affiliates to be earned by the undersigned during the calendar year identified above. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.

I hereby irrevocably elect to convert into an Award of Restricted Stock pursuant to the Plan for the year identified above, % [indicate any percentage up to 100%, in 10% increments] or $ [indicate any dollar amount in increments of $10,000] of my Salary.

Executed to be effective as of , 20 .


	(Signature)


	(Print Name)

B-1

Exhibit 10.2

WADDELL & REED FINANCIAL, INC.

1998 NON-EMPLOYEE DIRECTOR STOCK AWARD PLAN

As Amended and Restated

Waddell & Reed Financial, Inc. previously established the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan (formerly named the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Option Plan), as amended effective April 28, 1999 and as further amended effective on each of December 12, 2002, October 14, 2004 and October 19, 2005 (as amended, the “Original Plan”). Pursuant to the powers reserved in Section 8.1 of the Original Plan, the Original Plan is amended and restated effective October 18, 2012 as follows (the Original Plan, as amended and restated hereby, the “Plan”).

ARTICLE 1

Purposes of the Plan

Section 1.1. Purposes . The purposes of the Plan are to attract and retain highly qualified Non-Employee Directors and to promote the long-term growth of the Company by providing a vehicle for Non-Employee Directors to increase their proprietary interest in the Company.

ARTICLE 2

Definitions

Section 2.1 . Definitions. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:

“Acquisition” has the meaning assigned such term in Section 9.3 .

“Annual Compensation” means the annual cash retainer and meeting fees payable by the Company to a Non-Employee Director for services as a director (and, if applicable, as a member or chairman of a committee of the Board) of the Company, as such amount may be determined from time to time. For purposes of an election to convert Annual Compensation into Awards pursuant to the Plan, meeting fees will be deemed to be earned at the beginning of the year for all scheduled meetings during the year, whether or not the Awardee later attends such meetings.

“Annual SORP Exercise Date” has the meaning assigned such term in Section 6.5 .

“Award Grant Date” means the date on which an Award of Options or Restricted Stock, as the context applies, is made under the Plan which, unless the Committee determines

otherwise, shall be the first Business Day in January of the calendar year in which Annual Compensation will be earned.

“Award Agreement” means a written agreement by and between the Company and a Participant evidencing an award of Options or Restricted Stock, as applicable, under the Plan.

“Board” means the Board of Directors of the Company.

“Change in Control” means the occurrence of any of the following:

(b) the effective date of any transaction or event relating to the Company that is required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of the Exchange Act;

“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto.

“Committee” means the Compensation Committee of the Board.

“Company” means Waddell & Reed Financial, Inc., a Delaware corporation, and its successors.

“Conversion Election Form” means a form, substantially in the form attached hereto as Exhibit A , pursuant to which a Non-Employee Director elects to convert Annual Compensation to an Award pursuant to Section 5.1 .

“Election Date” means the date established by the Plan as the date by which a Participant must submit a valid Conversion Election Form to the Plan Administrator in order to participate in the Plan for a calendar year. For each calendar year, the Election Date is December 31 of the preceding calendar year; provided, however, that the Election Date for the first year in which a Non-Employee Director becomes eligible to participate in the Plan shall be the 30th day following the date on which such individual becomes a Non-Employee Director.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Non-Employee Director” means a director of the Company who is not an employee of the Company or of any Subsidiary.

“Option” means an option to purchase Shares granted pursuant to Article 6 .

“Participant” means any Non-Employee Director who is participating in the Plan.

“Repricing” has the meaning assigned to such term in Section 8.1 .

“Plan” means the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as Amended and Restated, as set forth herein and as may be amended, modified or supplemented from time to time.

“Plan Administrator” means the Committee or its delegee of administrative duties under the Plan pursuant to Section 3.2 .

“Restricted Stock” means Shares that are subject to certain restrictions and/or a risk of forfeiture granted pursuant to Article 6 .

“Shares” means shares of the Company’s Class A common stock, par value $.01.

“SORP” has the meaning assigned such term in Section 6.5 .

“SORP Option” has the meaning assigned such term in Section 6.5 .

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

ARTICLE 3

Administration of the Plan

Section 3.1. Administrator of the Plan. The Plan shall be administered by the Committee, except as may be delegated pursuant to Section 3.2 .

Section 3.2. Authority of Committee. The Committee shall have full power and authority to (a) interpret and construe the Plan and adopt such rules and regulations as it shall deem necessary and advisable to implement and administer the Plan, and (b) designate persons other than members of the Committee or the Board to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee’s business judgment as to the best interests of the Company and its stockholders and in accordance with the purposes of the Plan. The Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable.

ARTICLE 4

Participation

Section 4.1. Election to Participate. Each Non-Employee Director is automatically eligible to participate in the Plan. A Non-Employee Director may participate in the Plan for a calendar year by delivering a properly completed and signed Conversion Election Form to the Plan Administrator on or before the Election Date. The Non-Employee Director’s participation in the Plan will be effective as of the date the Plan Administrator receives the Non-Employee Director’s Conversion Election Form. A Non-Employee Director shall not be entitled to any

benefit hereunder unless such Non-Employee Director has properly completed a Conversion Election Form.

Section 4.2. Irrevocable Election. A Participant may not revoke or change his or her Conversion Election Form for a calendar year.

Section 4.3. No Right to Continue as a Director . Nothing contained in the Plan shall be deemed to give any Non-Employee Director the right to be retained as a director of the Company.

ARTICLE 5

Plan Benefits

Section 5.1. Conversion of Annual Compensation. A Non-Employee Director may elect to convert up to 100% of his or her Annual Compensation (in increments of 10% (but not less than 50%) or $10,000) to Awards in accordance with the terms of the Plan.

Section 5.2. Time of Conversion Election. A Non-Employee Director who wishes to convert Annual Compensation for a calendar year to Awards pursuant to Article 6 must irrevocably elect to do so on or prior to the Election Date for such calendar year, by delivering a valid Conversion Election Form to the Plan Administrator. The Conversion Election Form shall indicate the percentage or dollar amount of Annual Compensation to be converted.

Section 5.3. Responsibility for Investment Choices. Each Participant is solely responsible for any decision to convert Annual Compensation to Awards under the Plan and accepts all investment risks entailed by such decision, including the risk of loss and a decrease in the value of the amounts he or she elects to convert.

ARTICLE 6

Terms and Conditions of Awards

If a Participant remains in service as a Non-Employee Director of the Company through the Award Grant Date for Annual Compensation converted pursuant to Section 5.1, the Participant shall be granted Awards subject to the following terms and conditions:

Section 6.1 . Exercise Price of Awards. The exercise price per Share, if any, under each Option granted pursuant to this Article 6 shall be indicated in the Award Agreement. The exercise price per Share of any Option granted hereunder shall be 100% of the Fair Market Value per Share on the Award Grant Date.

Section 6.2 Number of Shares Subject to Awards .

(a) Number of Options. The number of Shares subject to an Option granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:

A = the dollar amount which the Participant has elected to convert to Options pursuant to Section 5.1 ; and

(b) Number of Shares of Restricted Stock. The number of Shares subject to an Award of Restricted Stock granted pursuant to this Article 6 shall be the number of whole Shares equal to A divided by B, where:

A = the dollar amount which the Participant has elected to convert to Restricted Stock pursuant to Section 5.1 ; and

B = the Fair Market Value of a Share on the Award Grant Date.

In determining the number of Shares subject to an Award of Restricted Stock, any fraction of a Share will be rounded down to the next whole number of Shares.

Effective January 1, 2004, a Participant will only be entitled to convert Annual Compensation into Options and/or Restricted Stock as determined by the Committee.

Section 6.3 Term of Awards .

(a) Exercise of Options. All Options shall be fully nonforfeitable, but shall be exercisable only at the time provided in this Section 6.3 and Section 6.4 below. Each Option shall be first exercisable, cumulatively, as to 10% of the total Shares subject to the Option commencing on each of the first through tenth annual anniversaries of the Award Grant Date. An Awardee’s death, Disability, retirement or other termination of his or her status as a Non-Employee Director shall not shorten the term of any outstanding Option. In no event shall the period of time over which the Option may be exercised exceed 11 years from the Award Grant Date. An Option, or portion thereof, may be exercised in whole or in part only with respect to whole Shares. Options may be exercised in whole or in part at any time during the exercise period by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the exercise price, in cash, by check or such other instrument as may be acceptable to the Committee (including instruments providing for “cashless exercise”). Payment in full or in part may also be made in the form of unrestricted Shares already owned by the Awardee (based on the Fair Market Value of the Shares on the date the Option is exercised). An Awardee shall have rights to dividends and other stockholder rights with respect to Shares subject to an Option only after the Awardee has given written notice of the exercise and has paid in full for such Shares.

(b) Terms of Restricted Stock Awards.

(ii) Forfeiture . Subject to Section 6.4 , upon termination of an Awardee’s status as a Non-Employee Director, Restricted Stock that is at the time of such termination subject to restrictions shall be forfeited and reacquired by the Company.

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as Amended and Restated (the “Plan”) and a Restricted Stock Award Agreement entered into between the registered owner and Waddell & Reed Financial, Inc. (the “Agreement”). Copies of the Plan and Agreement are on file in the offices of Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas 66202.”

Award of Restricted Stock shall lapse and the Shares subject to such Award shall be deemed fully vested and nonforfeitable, upon the first to occur of (a) the death of the Awardee, (b) the Disability of the Awardee, (c) the occurrence of a Change in Control, (d) the determination by the Committee that a particular Award, in whole or in part, shall become fully exercisable and/or nonforfeitable, or (e) as otherwise provided by the Committee by rule or regulation or in any Award Agreement, or as determined in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock shall be waived in whole or in part in the event of terminations resulting from specified causes. Upon acceleration, an Option will remain exercisable for the remainder of its original term.

Section 6.5 Award Agreement . Each Award granted under the Plan shall be evidenced by an Award Agreement, which shall be executed by an authorized officer of the Company. The Award Agreement shall contain provisions regarding (a) the number of Shares subject to the Award, (b) the exercise price per Share, if any, of the Award and the means of payment therefor, (c) the term of the Award, and (d) such other terms and conditions not inconsistent with the Plan as may be determined from time to time by the Committee. The Committee, in its discretion, may include in the grant of any Option under the Plan, a stock option restoration program (“SORP”) provision. A SORP provision shall provide, without limitation, that, if payment of the exercise price of an Option is made in the form of Shares, and the exercise of such Option occurs on the Annual SORP Exercise Date, an additional option to purchase Shares (a “SORP Option”) will automatically be granted to the Awardee effective as of the Annual SORP Exercise Date. A SORP Option shall (i) have an exercise price equal to 100% of the Fair Market Value of the Shares on the Annual SORP Exercise Date, (ii) have a term equal to that of the originally exercised Option giving rise to the SORP Option, not to exceed a maximum term of ten years and two days from the issuance date of the SORP Option (subject to any forfeiture provision or shorter limitation on exercise required under the Plan), (iii) have an initial vesting date no earlier than six months after the date of its issuance, and (iv) cover a number of Shares equal to the number of Shares used to pay the exercise price of the originally exercised Option, plus the number of Shares (if any) withheld for income taxes and employment taxes (plus any selling commissions) with respect to such original exercise. “Annual SORP Exercise Date” shall mean August 1, or if August 1 is not a Business Day, “Annual SORP Exercise Date” shall mean the next succeeding Business Day. Notwithstanding the foregoing, the Committee may delay the Annual SORP Exercise Date to the extent it determines necessary to comply with regulatory or administrative requirements.

ARTICLE 7
Shares Subject to the Plan

Section 7.1 Shares Subject to the Plan . Subject to adjustment as provided in Article 9 , the total number of Shares reserved and available for issuance in connection with Awards under the Plan shall not exceed 1,200,000 Shares. Shares delivered under the Plan may be newly issued Shares or previously issued and reacquired Shares. To the extent that Shares subject to an outstanding Award are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such Award or by reason of the delivery of Shares to pay all or a portion of the exercise price of an Award, then such Shares shall again be available for issuance under the Plan.

ARTICLE 8

Amendment, Suspension and Termination

Section 8.1 . Amendment, Suspension and Termination . The Board may amend, suspend or terminate the Plan or any Award Agreement at any time; provided, however, that the Board may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations, or securities exchange listing standards, and no such amendment, modification or termination shall adversely affect any outstanding Awards without the consent of the Participant. Notwithstanding the foregoing, a Repricing (as defined below) is prohibited without prior stockholder approval. For purposes of the Plan, “Repricing” means any of the following or any other action that has the same purpose and effect: (a) lowering the exercise price of an outstanding Option after it is granted or (b) canceling an outstanding Option at a time when its exercise or purchase price exceeds the then Fair Market Value of the Shares underlying such outstanding award, in exchange for another award or a cash payment, unless the cancellation and exchange occurs in connection with a merger, amalgamation, consolidation, sale of substantially all the Company’s assets, acquisition, spin-off or other similar corporate transaction.

ARTICLE 9

Adjustment Provisions

per Share, if any, and the number of Shares underlying each outstanding Award shall be adjusted so that the aggregate consideration payable to the Company and the value of each such Award shall not be changed. Adjustments pursuant to this Section 9.1 shall not be made to the extent the Plan has been amended to reflect any adjustment contemplated in this Section 9.1 .

ARTICLE 10

Miscellaneous

Section 10.1 . Withholding. If any Award granted under the Plan is or becomes subject to any withholding requirement, the Committee may require the Awardee to remit such withholding as a condition to exercising an Option or any portion thereof, or to receiving any Shares underlying an Award of Restricted Stock or the lapsing of restrictions thereon.

Section 10.2 . Compliance with SEC Regulations . All grants, vesting, lapsing of restrictions, and exercises of Awards under the Plan shall be executed in accordance with the requirements of Section 16 of the Exchange Act, and any regulations promulgated thereunder, to the extent applicable. To the extent that any of the provisions contained herein do not conform with Rule 16b-3 of the Exchange Act or any amendments thereto or any successor regulations, then the Committee may make such modifications so as to conform the Plan and any Awards granted thereunder to the requirements of Rule 16b-3.

Section 10.3 . Validity . In the event that any provision of the Plan or any related Award Agreement is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan or any related Award Agreement.

Section 10.4 . Inurement of Rights and Obligations . The rights and obligations under the Plan and any related agreements shall inure to the benefit of, and shall be binding upon the Company, its successors and assigns, and the Non-Employee Directors and their beneficiaries.

Section 10.5 . Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

Section 10.6 . Governing Law . The Plan shall be construed, governed and enforced in accordance with the laws of the State of Delaware, except as such laws are preempted by applicable Federal law.

EXHIBIT A

Conversion Election Form

for Calendar Year 20

Election to Convert Director Compensation to Restricted Stock pursuant to the

1998 Non-Employee Director Stock Award Plan

As Amended and Restated

The following constitutes the irrevocable election of the undersigned under the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as Amended and Restated (the “Plan”) with respect to the conversion to Restricted Stock of the Annual Compensation payable to the undersigned by Waddell & Reed Financial, Inc. (the “Company”) for services as a director (and, if applicable, as a member or chairman of a committee of the Board) of the Company during the calendar year identified above. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan.

I hereby irrevocably elect to convert, as of the first Business Day of the calendar year identified above, into an Award of Options to purchase common stock of the Company, to be granted at an exercise price of 100% of the Fair Market Value of the Company’s common stock on the Award Grant Date, pursuant to the Plan for the calendar year identified above, % [indicate any percentage from 50% to 100% (in 10% increments)] or $ [indicate any dollar amount in increments of $10,000] of my Annual Compensation.

I hereby irrevocably elect to convert, as of the first Business Day of the calendar year identified above, into an Award of Restricted Stock pursuant to the Plan for the calendar year identified above, % [indicate any percentage from 50% to 100% (in 10% increments)] or $ [indicate any dollar amount in increments of $10,000] of my Annual Compensation.

Executed effective as of , 20 .


	(Signature)



	(Print Name)

A-1

Exhibit 10.3

WADDELL & REED FINANCIAL, INC.

RESTRICTED STOCK AWARD AGREEMENT

WADDELL & REED FINANCIAL, INC., a corporation organized and existing under the laws of the state of Delaware (or any successor corporation) (the “Company”), does hereby grant and give unto (the “Awardee”), an award of restricted shares of Company Class A common stock (the “Restricted Stock”) upon the terms and conditions hereinafter set forth (the “Award”).

AUTHORITY FOR GRANT

1. Executive Stock Award Plan . The Restricted Stock is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Executive Stock Award Plan, as amended and restated (the “Plan”), and is subject to the terms and conditions set forth in this Restricted Stock Award Agreement (the “Agreement”) and not inconsistent with the Plan. Capitalized terms used but not defined herein shall have the meaning given them in the Plan, which is incorporated by reference herein.

TERMS OF AWARD

2. Number of Shares . In consideration of future services to the Company, the Awardee is hereby granted shares of Restricted Stock (the “Shares”) of the Company’s Class A common stock, par value $.01 (the “Stock”) on , 20 (the “Grant Date”), subject to repurchase of a portion thereof by the Company pursuant to Section 12 below.

3. Restrictions; Forfeiture . The Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until its restrictions are removed or expire. The Restricted Stock may be forfeited to the Company pursuant to Sections 5(b) and 7, at which time the Company shall have the right to instruct the Company’s transfer agent to transfer the Restricted Stock to the Company to be held by the Company in treasury or by any designee of the Company.

4. Expiration of Restrictions and Risk of Forfeiture . The restrictions and risk of forfeiture for the Restricted Stock will expire as set forth in this Section 4, as of the vesting dates set forth in this Section 4, provided that (a) Awardee is an employee of the Company, a Subsidiary or an Affiliate continuously from the Grant Date through the applicable vesting date, and (b) the restrictions and risk of forfeiture have not previously expired pursuant to this Agreement.

Percentage of Shares Vesting		Vest Date

33 1 / 3 %		, 20
33 1 / 3 %		, 20
33 1 / 3 %		, 20

TERMINATION OF AWARD

5. Termination of Employment .

(a) Termination of Employment Due to Death or Disability . If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates by reason of death or Disability, the restrictions and risk of forfeiture with respect to the Restricted Stock which have not expired shall immediately lapse and all shares of the Restricted Stock shall be deemed fully vested and nonforfeitable.

(b) Termination of Employment Other Than Due to Death or Disability . If an Awardee’s employment with the Company or any of its Subsidiaries or Affiliates terminates for a reason other than death or Disability, the shares of Restricted Stock for which the restrictions and risk of forfeiture have not expired as of the date of termination shall be immediately forfeited without further action by the Company; provided, however, that the portion, if any, of those shares of Restricted Stock for which the restrictions and risk of forfeiture have expired as of the date of such termination shall not be forfeited.

6. Change in Control of the Company . In the event of a Change in Control, unless otherwise determined by the Committee in writing at or after the Grant Date, but prior to the occurrence of such Change in Control, the restrictions with respect to the Restricted Stock shall lapse and such shares shall be deemed fully vested and nonforfeitable.

7. Section 83(b) Election . The Awardee acknowledges that this Award is conditioned upon Awardee’s agreement that Awardee will forgo any rights Awardee has to make an election under section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to the Restricted Stock (an “83(b) Election”). In the event that Awardee makes a timely 83(b) Election with respect to the Restricted Stock all shares of Restricted Stock subject to this Agreement shall be immediately forfeited as of the Grant Date without further action of the Company.

GENERAL TERMS AND PROVISIONS

8. Administration of Award . The Restricted Stock shall be maintained in a book-entry account (the “Account”) by and at the Company’s transfer agent until the restrictions associated with such Restricted Stock expire pursuant to Sections 4, 5, 6 or 7. The Awardee shall execute and deliver to the transfer agent one or more stock powers in blank for the Restricted Stock. The Awardee hereby agrees that the transfer agent shall maintain such Account and the related stock power(s) pursuant to the terms of this Agreement until such restrictions expire pursuant to Sections 4, 5, 6 or 7.

9. Ownership of Restricted Stock . From and after the time that the Account representing the Restricted Stock has been activated and prior to forfeiture, the Awardee will be entitled to all the rights of absolute ownership of the Restricted Stock, including the right to vote those shares and to receive dividends thereon if, as, and when declared by the Board, subject,

however, to the terms, conditions and restrictions set forth in this Agreement. Dividends paid in stock of the Company or stock received in connection with a Stock split with respect to the Restricted Stock shall be subject to the same restrictions as on such Restricted Stock. The shares of Restricted Stock subject to this Award are not eligible to be enrolled in any dividend re-investment program until the restrictions thereon expire.

10. Adjustment of Shares for Recapitalization, Etc. In the event there is any change in the outstanding Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares or otherwise, there shall be substituted for or added to each share of Stock theretofore appropriated or thereafter subject, or which may become subject, to this Award, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. Adjustment under the preceding provisions of this Section 10 will occur automatically upon any such change in the outstanding Stock of the Company. No fractional interest will be issued under the Plan on account of any such adjustment.

11. Conditions to Delivery of Stock and Registration . Nothing herein shall require the Company to issue or the transfer agent to deliver any shares with respect to the Award if (a) that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect; or (b) the withholding obligation as provided in Section 12 of this Agreement has not been satisfied. From time to time, the Board and appropriate officers of the Company are authorized to and shall take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make shares of Stock available for issuance.

12. Payment of Taxes . The delivery of shares of Stock pursuant to this Award is conditioned upon satisfaction of any withholding obligation described in this Section 12. The Awardee may be required, from time to time, in the Company’s discretion, to pay to the Company (or any Subsidiary or Affiliate as applicable), the amount that the Company deems necessary to satisfy the Company’s or its Subsidiary’s or Affiliate’s current or future obligation to withhold federal, state or local income or other taxes incurred by the Awardee as a result of the Award. With respect to any required tax withholding obligation, the Company will withhold from the gross number of shares of Stock to be issued upon vesting a number of shares equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or, upon timely request by the Awardee, the Company may, in its sole discretion, allow the Awardee to deliver to the Company (a) sufficient shares of Stock to satisfy any required tax withholding obligation, based on the shares’ Fair Market Value at the time such obligation is incurred or (b) sufficient cash to satisfy such obligation in lieu of such withholding by the Company. In the event that the Company subsequently determines that the aggregate Fair Market Value of any shares of Stock withheld by the Company or submitted by the Awardee as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then the Awardee shall pay to the Company, immediately upon the Company’s request, the amount of that deficiency in cash.

13. Company Records . Records of the Company or its Subsidiaries or Affiliates regarding any period(s) of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

14. Right of the Company and Subsidiaries to Terminate Employment . Nothing contained in this Agreement shall confer upon the Awardee the right to continue in the employ of the Company or any Subsidiary or Affiliate, or interfere in any way with the rights of the Company or any Subsidiary or Affiliate to terminate the Awardee’s employment at any time.

15. No Liability for Good Faith Determinations . The members of the Board and the Committee shall not be liable for any act, omission, interpretation or determination taken or made in good faith with respect to this Agreement or the Restricted Stock granted hereunder and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

16. Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

17. Successors . This Agreement shall be binding upon the Awardee, their legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

18. Notices . Any notices required by or permitted to be given to the Company under this Agreement shall be made in writing and addressed to the Secretary of the Company in care of the Company’s Legal Department, 6300 Lamar Avenue, Overland Park, Kansas 66202. Any such notice shall be deemed to have been given when received by the Company.

19. Headings . The titles and headings herein are included for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

20. Rules of Construction . This Agreement has been executed and delivered by the Company in Kansas and shall be construed and enforced in accordance with the laws of said State, other than any choice of law rules calling for the application of laws of another jurisdiction. Should there be any inconsistency or discrepancy between the provisions of this Agreement and the terms and conditions of the Plan under which this Award is granted, the provisions in the Plan shall govern and prevail.

21. Amendment . This Agreement may be amended by the Committee; provided, however, that no amendment may decrease rights inherent in this Award prior to such amendment without the express written consent of the parties hereto. Notwithstanding the

provisions of this Section 21, this Agreement may be amended by the Committee to the extent necessary to comply with applicable laws and regulations and to conform the provisions of this Agreement to any changes thereto.

22. Effective Date . This Agreement has been executed this day of , 20 , effective as of , 20 .

	WADDELL & REED FINANCIAL, INC.


	By:
		Daniel P. Connealy, Senior Vice President and Chief Financial Officer

		“Company”




		“Awardee”

STOCK POWER

FOR VALUE RECEIVED, does hereby assign and transfer unto Waddell & Reed Financial, Inc. (51-0261715) shares of Class A common stock of Waddell & Reed Financial, Inc., a Delaware corporation, granted on , 20 , as evidenced by the Restricted Stock Award Agreement of even date therewith and standing in the name of the undersigned on the books of Waddell & Reed Financial, Inc. The undersigned does hereby appoint Computershare Trust Company, N.A. as attorney-in-fact to transfer the said stock on the books of Waddell & Reed Financial, Inc. with full power of substitution in the premises.

Dated as of this day of , 20 .

Exhibit 10.4

WADDELL & REED FINANCIAL, INC.

RESTRICTED STOCK AWARD AGREEMENT

AUTHORITY FOR GRANT

1. Non-Employee Director Stock Award Plan . The Restricted Stock is granted under the provisions of the Waddell & Reed Financial, Inc. 1998 Non-Employee Director Stock Award Plan, as amended and restated (the “Plan”), and is subject to the terms and conditions set forth in this Restricted Stock Award Agreement (the “Agreement”) and not inconsistent with the Plan. Capitalized terms used but not defined herein shall have the meaning given them in the Plan, which is incorporated by reference herein.

TERMS OF AWARD

2. Number of Shares . Pursuant to the Conversion Election Form dated , the Awardee is hereby granted shares of Restricted Stock (the “Shares”) of the Company’s Class A common stock, par value $.01 (the “Stock”) on , 20 (the “Grant Date”), subject to repurchase of a portion thereof by the Company pursuant to Section 11 below.

3. Restrictions; Forfeiture . The Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until its restrictions are removed or expire. The Restricted Stock may be forfeited to the Company pursuant to Section 5(b), at which time the Company shall have the right to instruct the Company’s transfer agent to transfer the Restricted Stock to the Company to be held by the Company in treasury or by any designee of the Company.

4. Expiration of Restrictions and Risk of Forfeiture . The restrictions and risk of forfeiture for the Restricted Stock will expire as set forth in this Section 4, as of the vesting dates set forth in this Section 4, provided that (a) Awardee serves as a Director of the Company continuously from the Grant Date through the applicable vesting date, and (b) the restrictions and risk of forfeiture have not previously expired pursuant to this Agreement.

Percentage of Shares Vesting		Vest Date

33 1 / 3 %		, 20
33 1 / 3 %		, 20
33 1 / 3 %		, 20

TERMINATION OF AWARD

5. Termination of Service on the Board .

(a) Termination of Service Due to Death or Disability . If an Awardee’s service on the Board terminates by reason of death or Disability, the restrictions and risk of forfeiture with respect to the Restricted Stock which have not expired shall immediately lapse and all shares of the Restricted Stock shall be deemed fully vested and nonforfeitable.

(b) Termination of Service Other Than Due to Death or Disability . If an Awardee’s service on the Board terminates for a reason other than death or Disability, the shares of Restricted Stock for which the restrictions and risk of forfeiture have not expired as of the date of termination shall be immediately forfeited without further action by the Company; provided, however, that the portion, if any, of those shares of Restricted Stock for which the restrictions and risk of forfeiture have expired as of the date of such termination shall not be forfeited.

GENERAL TERMS AND PROVISIONS

7. Administration of Award . The Restricted Stock shall be maintained in a book-entry account (the “Account”) by and at the Company’s transfer agent until the restrictions associated with such Restricted Stock expire pursuant to Sections 4, 5 or 6. The Awardee shall execute and deliver to the transfer agent one or more stock powers in blank for the Restricted Stock. The Awardee hereby agrees that the transfer agent shall maintain such Account and the related stock power(s) pursuant to the terms of this Agreement until such restrictions expire pursuant to Sections 4, 5 or 6.

8. Ownership of Restricted Stock . From and after the time that the Account representing the Restricted Stock has been activated and prior to forfeiture, the Awardee will be entitled to all the rights of absolute ownership of the Restricted Stock, including the right to vote those shares and to receive dividends thereon if, as, and when declared by the Board, subject, however, to the terms, conditions and restrictions set forth in this Agreement. Dividends paid in stock of the Company or stock received in connection with a Stock split with respect to the Restricted Stock shall be subject to the same restrictions as on such Restricted Stock. The shares of Restricted Stock subject to this Award are not eligible to be enrolled in any dividend re-investment program until the restrictions thereon expire.

9. Adjustment of Shares for Recapitalization, Etc. In the event there is any change in the outstanding Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares or otherwise, there shall be substituted for or added

to each share of Stock theretofore appropriated or thereafter subject, or which may become subject, to this Award, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. Adjustment under the preceding provisions of this Section 9 will occur automatically upon any such change in the outstanding Stock of the Company. No fractional interest will be issued under the Plan on account of any such adjustment.

10. Conditions to Delivery of Stock and Registration . Nothing herein shall require the Company to issue or the transfer agent to deliver any shares with respect to the Award if that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act of 1933, as amended, or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. From time to time, the Board and appropriate officers of the Company are authorized to and shall take whatever actions are necessary to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make shares of Stock available for issuance.

11. Tax Obligations . The Awardee shall be responsible for satisfaction of any current or future federal, state or local income or other tax obligation incurred by the Awardee as a result of the Award. With respect to any such required tax obligation, the Awardee may (a) upon election, at the time and in the manner prescribed by the Company, direct the Company to purchase from the Awardee the number of shares of Stock to be issued upon vesting equal in value to the amount of such obligation, based on the shares’ Fair Market Value at the time such obligation is determined, at which time the Company shall deliver to the Awardee an amount in cash equal to the aggregate Fair Market Value of the shares purchased by the Company, or (b) if no such election is made by the Awardee, the Awardee shall otherwise satisfy such tax obligation by such other means as the Awardee may determine.

12. Company Records . Records of the Company or its Subsidiaries or Affiliates regarding any period(s) of service on the Board, termination of service and the reason therefor, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

13. No Liability for Good Faith Determinations . The members of the Board and the Committee shall not be liable for any act, omission, interpretation or determination taken or made in good faith with respect to this Agreement or the Restricted Stock granted hereunder and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

14. Severability . If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

15. Successors . This Agreement shall be binding upon the Awardee, their legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

16. Notices . Any notices required by or permitted to be given to the Company under this Agreement shall be made in writing and addressed to the Secretary of the Company in care of the Company’s Legal Department, 6300 Lamar Avenue, Overland Park, Kansas 66202. Any such notice shall be deemed to have been given when received by the Company.

17. Headings . The titles and headings herein are included for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

18. Rules of Construction . This Agreement has been executed and delivered by the Company in Kansas and shall be construed and enforced in accordance with the laws of said State, other than any choice of law rules calling for the application of laws of another jurisdiction. Should there be any inconsistency or discrepancy between the provisions of this Agreement and the terms and conditions of the Plan under which this Award is granted, the provisions in the Plan shall govern and prevail.

19. Amendment . This Agreement may be amended by the Committee; provided, however, that no amendment may decrease rights inherent in this Award prior to such amendment without the express written consent of the parties hereto. Notwithstanding the provisions of this Section 19, this Agreement may be amended by the Committee to the extent necessary to comply with applicable laws and regulations and to conform the provisions of this Agreement to any changes thereto.

[SIGNATURE PAGE TO FOLLOW]

20. Effective Date . This Agreement has been executed this day of , 20 , effective as of , 20 .

	WADDELL & REED FINANCIAL, INC.


	By:
		Daniel P. Connealy, Senior Vice President and Chief Financial Officer

		“Company”




		“Awardee”

STOCK POWER

Dated as of this day of , 20 .

Exhibit 31.1

I, Henry J. Herrmann, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Waddell & Reed Financial, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2012

		/s/ Henry J. Herrmann
		Henry J. Herrmann
		Chief Executive Officer

Exhibit 31.2

I, Daniel P. Connealy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Waddell & Reed Financial, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2012

		/s/ Daniel P. Connealy
		Daniel P. Connealy
		Senior Vice President and
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Henry J. Herrmann, Chief Executive Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”) dated November 2, 2012 and filed with the United States Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2012

		/s/ Henry J. Herrmann
		Henry J. Herrmann
		Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Daniel P. Connealy, Senior Vice President and Chief Financial Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2012

		/s/ Daniel P. Connealy
		Daniel P. Connealy
		Senior Vice President and
		Chief Financial Officer