UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 20092012

OR

For the transition period from                    to                    

Commission file number 1-31234

WESTWOOD HOLDINGS GROUP, INC.

(Exact name of registrant as specified in its charter)

Registrant'sRegistrant’s telephone number, including area code: (214) 756-6900

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

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

The aggregate market value on June 30, 20092012 of the voting and non-voting common equity held by non-affiliates of the registrant was $235,650,000.$249,133,000. For purposes of this calculation, the registrant has assumed that stockholders that are not officers or directors of the registrant are not affiliates of the registrant.

The number of shares of registrant'sregistrant’s Common Stock, par value $0.01 per share, outstanding as of February 22, 2010: 7,151,472.24, 2013: 8,123,263.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the registrant'sregistrant’s definitive Proxy Statement for the 20102013 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

WESTWOOD HOLDINGS GROUP, INC.

Index

i

PART I

Unless the context otherwise requires, the term “we,” “us,” “our,” “Westwood,” or “Westwood Holdings Group” when used in this Form 10-K (“Report”) and in the Annual Report to the Stockholders refers to Westwood Holdings Group, Inc., a Delaware corporation, and its consolidated subsidiaries and predecessors taken as a whole. This Report contains some forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including without limitation those set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors”.

General

We manage investment assets and provide services for our clients through our two subsidiaries, Westwood Management Corp. (“Westwood Management”), Westwood Trust, and Westwood Trust.International Advisors Inc. (“Westwood International”). Westwood Management provides investment advisory services to corporate retirement plans,and public retirement plans, endowments and foundations, a family of mutual funds which we callcalled the WHGWestwood Funds^TM, other mutual funds, individuals and clients of Westwood Trust. We changed the name of our mutual fund family in early 2012 from the WHG Funds to the Westwood Funds^TM as part of an effort to consolidate our branding strategies under the Westwood name, which has significant meaning to our firm. Westwood Trust provides trust and custodial services and participation in self-sponsored common trust funds that it sponsors to institutions and high net worth individuals. Westwood International, based in Toronto, Canada, was established in the second quarter of 2012 and provides global and emerging markets investment advisory services to institutional clients, the Westwood Funds^TM, other mutual funds and clients of Westwood Trust. Our revenues are generally derived from fees based on a percentage of assets under management, and at December 31, 2009,management. Westwood Management, Westwood Trust and Westwood TrustInternational collectively managed assets valued at approximately $10.2 billion. We have been providing investment advisory services since 1983 and, according to recognized industry sources, including Morningstar, Inc., when measured over multi-year periods of ten years and longer, our principal asset classes rank$14.2 billion at or above the median in performance within their peer groups.December 31, 2012.

The coresuccess of our business is very dependent on our client relationships. We believe that, in addition to investment performance, client service is paramount in the asset management business. As such,Accordingly, a major focus of our business strategy is to continue buildingbuild strong relationships with clients to better enable usenhance our ability to anticipate their needs and to satisfy their investment objectives. Our team approach is designed to result indeliver efficient, responsive service forto our clients. Our future success is dependent to a significant degree on both investment performance and our ability to provide attentive client service.

We were incorporated under the laws of the State of Delaware on December 12, 2001. We are an independent public company and our common stock is listed on the New York Stock Exchange under the ticker symbol “WHG.” We are a holding company and ourwhose principal assets consist of the capital stock of Westwood Management, Westwood Trust and Westwood Trust.International.

One of theseveral priorities on which we have focused since 2002 is the building of a foundation in terms of personnel and infrastructure to support a potentially much larger business. We have also developed products that we believe willexpect to be desirable within our target institutional, private wealth and private clientmutual fund markets. The costcosts of developing new products and building the organization as a whole can result in our incurring expenses before materialsignificant offsetting revenue isrevenues are realized. We believe that the business foundation and a range of appropriate products are now in place, and we have been taking these products to the institutional marketplace in recent years. Weyears to our served markets where they have seenbeen received with a high level of interest, from institutional investors in these products, which we hope will generatethereby generating new revenue streams.

Available Information

We maintain a website at www.westwoodgroup.com. Information contained on, or connected to, our website is not incorporated by reference into this Form 10-K and should not be considered part of this reportReport or any other filing that we make with the SEC. All filings made by us with the Securities and Exchange Commission (“SEC”),. All of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website. Additionally, our Code of Business Conduct and Ethics, our

Corporate Governance Guidelines and our Audit Committee, Compensation Committee and Governance/Nominating Committee Charters are available without charge on our website. Stockholders also may obtain print copies of these documents free of charge by submitting a written request to William R. Hardcastle, Jr.Mark A. Wallace, our Chief Financial Officer, at the address set forth in the front of this Report. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including Westwood Holdings Group, Inc. that file electronically with the SEC. The public can also obtain any document we file with the SEC atwww.sec.gov.

Westwood ManagementAdvisory

General

Our advisory business is comprised of Westwood Management and Westwood International.

Westwood Management provides investment advisory services to large institutions, including corporate retirement plans, public retirement plans, endowments and foundations, having at least $10 – $25 million in investable assets, dependingfoundations. Institutional separate account minimums depend on the asset class.strategy offered but generally range from $10 million to $25 million. Westwood Management also provides advisory services to individuals and the WHGWestwood Funds^TM and subadvisory services to other mutual funds. Our overall investment philosophy was developed by our Founder and Chairman, Susan M. Byrne, and is determinedimplemented by a team of investment professionals includingunder the leadership of our chief investment officer, Susan M. Byrne, and, withChief Investment Officer, Mark Freeman. With respect to the bulk of assets under management consists ofwe utilize a value-oriented approach“value” investment style focused on achieving a superior long-term, risk-adjusted return by investing in companies generatingwith high levels of free cash flow, with strongimproving returns on equity, strengthening balance sheets and well positioned for growth but whose value is not fully recognized as such in the marketplace. This investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term. Westwood Management’sOur investment advisory team consistsmembers average investment experience of a number of investment management, researchfifteen years and trading professionals with substantial investment management experience. The continuityone third of the team has worked together at Westwood for more than six years. Team continuity and its years of experience are among the critical elements inrequired for successfully managing investments.

Westwood International provides investment advisory services to large institutions and subadvisory services to the National Bank Westwood Funds, which are mutual funds offered by National Bank of Canada. Westwood International has entered into a Memorandum of Understanding (“MOU”) with Westwood Management pursuant to which Westwood International is considered a “participating affiliate” of Westwood Management as that term is used in relief granted by the staff of the SEC allowing U.S. registered investment advisers to use portfolio management or research resources of advisory affiliates subject to the supervision of a registered adviser. Pursuant to the MOU, Westwood International professionals provide advisory and subadvisory services to certain Westwood Funds, common trust funds sponsored by Westwood Trust. and large U.S. institutions under the supervision of Westwood Management.

Managed Asset ClassesInvestment Strategies

Asset Management. We offer a broad range of investment asset classesstrategies allowing us to serve various client types of clients and varying investment objectives. More than halfApproximately 37% of our assets under management are invested in our LargeCap Value asset class.strategy. The following sets forth the principal asset classesinvestment strategies currently managed by Westwood Management:Management are as follows:

LargeCap Value: Investments in equity securities of approximately 45-6040-60 well-seasoned companies with market capitalizations generally over $5 billion. This portfolio is invested in companies where we expect that future profitability, driven by operational improvements, will be higher thanexceed expectations reflected in current share prices. The median market capitalization of our LargeCap Value portfolio was $31.8 billion as of December 31, 2009.

MidCap Value:Dividend Growth:Investments in equity securities of approximately 50-7040-60 high quality companies with market capitalizations generally over $1 billion. This portfolio is invested in companies of which at least 80% are paying dividends and whose prospects for dividend growth are strong. This strategy combines quantitative and fundamental research to create a diversified portfolio of companies we believe can create value for shareholders.

SMidCap Plus+: Investments in equity securities of approximately 45-65 companies with market capitalizations between $4$2 billion and $20$15 billion. Similar to the LargeCap Value asset class,our other value-oriented investment strategies, we seek to discover operational improvements that are driving earnings growth within small to mid-sizemid-sized companies that can be purchased inexpensively.

SMidCap Value: Investments in equity securities of approximately 45-60 companies with market capitalizations between $100$500 million and $10 billion. Similar to our other value-oriented asset classes,investment strategies, we seek to discover operational improvements that are driving earnings growth within small to mid-size companies that can be purchased inexpensively. This strategy reached its asset capacity in 2010 and is now closed to new investors.

SmallCap Value: Investments in equity securities of approximately 50-70 companies with market capitalizations between $100 million and $2.5$2 billion. Similar to our other value-oriented asset classes,investment strategies, we seek to invest in high quality companies whose earnings growth is driven by operational improvements not yet fully recognized by the market.

AllCap Value: Investments in equity securities of approximately 60-8050-80 well-seasoned companies. The portfolio is generally comprised of thecomprises our investment professionals’ best ideas within allamong companies with market capitalizations above $100 million. Similar to our other value-oriented asset classes,investment strategies, we seek to invest in companies across a broad range of market capitalizations where we expect that future profitability, driven by operational improvements, will be higher than expectations currently reflected in share prices.

LargeCap Enhanced: Investments in equity securities of approximately 75-100 long and 20-30 short, well-seasoned companies with market capitalizations above $3 billion. Using fundamental research with a quantitative screening overlay, this portfolio is invested in companies where we expect that future profitability, driven by operational improvements, will be higher than expectations reflected in current share prices and also shorts companies where we expect that future profitability is below what is reflected in current share prices.

Balanced: Investments in a combination of equity and fixed income securities, designed to provide both growth opportunities and income, while also emphasizing asset preservation in “down” markets. Westwood Management applies its expertise in dynamic asset allocation and security selection decisions in carrying out this balanced strategy approach.

Income Opportunity: Investments in dividend-paying common stocks, straight andpreferred stocks, convertible preferred stock,securities, master limited partnerships, royalty trusts, REITs and selected debt instruments. This portfolio’s strategy focuses on companies with strong and improving cash flow sufficient to support a sustainable or rising income stream for investors. This asset classstrategy is targeted towards investors seeking high current income, a competitive total return and low volatility through dividend-paying and/or interest-bearing securities.

Master Limited Partnerships (MLPs)(“MLPs”): Investments include MLPs (including limited partnerships “LPs,” and general partnerships, “GPs”), securities of tankerpartnerships) and other marine shipping companies and othersecurities. Within these types of securities, whose characteristics are consistent with those listed above. Thethe portfolio focuses on companiespartnerships that over time, exhibit higher dividenddistribution yields, stable and predictable cash flows, low correlations to other asset classes, and growth opportunities.potential.

Core/IntermediateInvestment Grade Fixed Income: Investments in high-grade, intermediate term corporate and government bonds. We seek to add value to client portfolios through yield curve positioning and investing in debt instruments with improving credit quality potential.

Each asset classinvestment strategy consists of a portfolio of equity and/or fixed income securities selected by Westwood Management’sWestwood’s portfolio teams and chosen to best provide the long termoptimize long-term returns consistent with Westwood Management’sWestwood’s investment philosophy. Our portfolio teams make decisions for all of Westwood Management’s asset classesManagement investment strategies in accordance with the investment objectives and policies of such asset classes,those strategies, including determining when and which securities to purchase and sell.

We employ a value-oriented approach in managingfor our domestic equity asset classes.investment strategies. The common thread that permeates our investmentthese strategies is our focus on a disciplined approach to controlling risk and whenever possible, preserving the core value of our clients’ assets. Our value-oriented asset classes place a greater emphasis on identifying companies where earnings result from actual operational improvements rather than from improvements derived from financial statement adjustments. Our desire to prevent the loss of the core value of client assets whenever possible. Our investment teams seek to invest in companies with high levels of free cash flow, improving returns on equity, and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the overriding objective of this strategy, even at the cost of potentially higher returns.marketplace. Through investments in companies that exhibit these characteristics, Westwood Management seekswe seek to demonstrate consistently superior performance relative to our industry peers and relevant benchmark indices.

MoreWe believe we have established a track record of delivering competitive risk-adjusted returns for our clients. On an asset-weighted basis, more than half90 percent of our investment strategies have delivered above-benchmark performance and more than 95 percent have experienced below-benchmark volatility.

Westwood International offers investment strategies that allow us to serve clients wishing to invest in strategies offering access to global and emerging markets. Over 70% of Westwood International’s $888 million of assets under management areat December 31, 2012 is invested in equity securitiesour Emerging Markets strategies. The principal investment strategies currently managed by Westwood International are as follows:

Emerging Markets: This strategy invests in the common stocks of 70-90 companies that are located or have primary operations in emerging markets and have market capitalizations above USD $500 million. The portfolio is invested in companies that we believe are sound businesses that are mispriced and can generate positive and sustainable earnings growth, thus generating economic profits growth over time.

Emerging Markets Plus: Similar to Emerging Markets, this strategy invests in the common stock of 50-70 companies that are located or have primary operations in emerging markets and have market capitalizations above USD $1.5 billion. The portfolio is invested in companies that we believe are sound businesses that are mispriced and can generate positive and sustainable earnings growth, thus generating economic profits growth over time.

Global Equity:Invests in the common stock of 65-85 companies located throughout the world, with market capitalizations above USD $1 billion. Similar to our Emerging Markets strategy, the portfolio invests in companies that we believe are sound businesses that are mispriced and can generate positive and sustainable earnings growth, thus generating economic profits growth over time.

Global Dividend:Invests in the common stock of 65-90 well-established companies around the world, with an emphasis on the sustainability and growth of dividends. This strategy seeks to invest in businesses that we believe are mispriced and can generate positive and sustainable earnings growth, thus achieving economic profits over time. The Global Dividend strategy searches for companies with large market capitalizations. When measured over multi-year periods, ten yearsliquidity, the ability to generate sustainable and longer, Westwood Management’s principal asset classes have consistently ranked above the median within peer group performance rankings accordingpositive economic profits, strong franchises with attractive valuations, earnings sustainability and an ability or prospective ability to recognized industry sources, including Morningstar, Inc.pay dividends.

Our ability to grow assets under management is primarily dependent on our ability to generate competitive long-terminvestment performance, record,our success in building strong relationships with investment consulting firms nationwideand other financial intermediaries as well as our ability to develop new client relationships. We continually look for opportunitiesseek to expand our assets under management by growing our existing asset classes andinvestment strategies as well as developing new portfolios focusing on investment areas not part of our current asset classes under management.ones. We primarily intend to grow our asset classesinvestment strategies internally but may also consider acquiring new asset classesinvestment strategies from third parties, as discussed under “—Growth Strategy” below. Our growth strategy provides our clients with more investment opportunities and diversifies our assets under management, thereby reducing our risk in any one area of investment and increasing our competitive ability to attract new clients.

Advisory and Subadvisory Service Agreements

Westwood Management managesand Westwood International manage client accounts under investment advisory and subadvisory agreements. Typical withinAs is typical in the asset management industry, such agreements are usually terminable upon short notice and provide for compensation based on the market value of the client’sclient assets under management. Westwood Management’sWestwood’s advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter, quarterly in arrears based on assets under management on the last day of the previous quarter, or are based on a daily or monthly analysis of assets under management for the stated period. A limited number of ourfew clients have acontractual performance-based fee component in their contract,arrangements, which generatesgenerate additional revenues if we outperform a specified index over a specific period of time. We record revenueRevenue for performance-based fees is recorded at the end of the measurement period. Revenue from advance payments is deferred and recognized over the period that services are performed. Pursuant to these agreements, Westwood Management provides overall investment management services, including directing investments in conformity with theclient-established investment objectives and restrictions established by clients.restrictions. Unless otherwise directed in writing by our client,clients, Westwood Management has the authority to vote all proxies with respect to securities in client assets.portfolios.

Westwood Management is also a partyand Westwood International are parties to subadvisory agreements with other investment advisors under which it performs substantially the samethey perform similar services as it doesthey do under its advisory agreements. However, the investment strategy adopted for a particular client is subject to supervision and review by the client. Our subadvisory fees are generally computed based upon the average daily net assets of the clientunder management and are payable on a monthly basis. As with our advisory agreements, these agreements are terminable upon short notice.

Under our subadvisory agreement with Teton Advisors, Inc. (formerly Gabelli Advisers,, an affiliate of GAMCO Investors, Inc.), Westwood Management provides investment advisory services to the GAMCOTeton Westwood Funds family of mutual funds. Westwood Management owns shares of Class A Common Stock representing a 15.3% economic interest in Teton Advisors, Inc., an affiliate of GAMCO Investors, Inc. Based on SEC filings, we believe that GAMCO Investors, Inc. owned 13.2%10.2% of our common stock as of December 31, 2009.2012. Westwood Management received subadvisory payments from Teton Advisors, Inc. of $617,000, $784,000totaling $414,000, $502,000 and $844,000$573,000 for the twelve months ended December 31, 2009, 20082012, 2011 and 2007,2010, respectively.

While Westwood Management provides subadvisory services with respect to the Teton Westwood Funds family of mutual funds, Westwood Management provides investment advisory services directly to the WHGWestwood Funds^TM family of mutual funds, which includes the WHG SMidCap Fund, the WHGWestwood Income Opportunity Fund, the WHGWestwood SMidCap Fund, the Westwood LargeCap Value Fund, the WHG BalancedWestwood SmallCap Value Fund, the Westwood Dividend Growth Fund, the Westwood SMidCap Plus+ Fund, the Westwood Short Duration High Yield Fund, the Westwood Emerging Markets Fund, the Westwood Global Equity Fund and the WHG SmallCap ValueWestwood Global Dividend Fund. “WHG Funds” represent the familyThe Westwood Short Duration High Yield Fund is subadvised by SKY Harbor Capital Management, LLC, a registered investment adviser based in Greenwich, Connecticut. As of institutional mutual funds for which Westwood Management serves as advisor. “Westwood Funds” represent the family of mutual funds for which Westwood Management serves as subadvisor.

One of our largest clients in terms of assets paid us both asset-based and performance-based advisory fees two of the last three years. Due to a significant performance fee earned in 2008, this client accounted for 19.5% of our fee revenues in 2008; however, this client did not pay us a performance fee in 2009 and accounted for less than 1% of our revenues for the year ended December 31, 2009. 2012, the Westwood Funds^TM had assets under management of $1.6 billion.

Our four largest clients accounted for approximately 13.1%12.6% of our fee revenues for the year ended December 31, 2009.2012. The loss of some or all of these large clients or the failure to achieve superior investment performance necessary to earn a performance fee could have a material adverse affecteffect on our business and our results of operations.

Westwood Trust

General

Through Westwood Trust, provideswe provide trust and custodial services and participation in Westwood Trust sponsored common trust funds that it sponsors to institutions and high net worth individuals and families generally having at least $1$2 million in assets under management.investable assets. Westwood Trust seeks to define and improve the risk/return profileprofiles of the client’sclient investment portfolioportfolios by complementing or enhancing existing investment strategies. Westwood Trust provides back office services to its clients, including tax reporting, distribution of income to beneficiaries, preparation of account statements and attending to the special needs of particular trusts, and also serves as trustee for tax and estate-planning purposes and for special needs trusts. Westwood Trust is chartered and regulated by the Texas Department of Banking.

Westwood Trust primarily provides services for employee benefit trusts and personal trusts. Employee benefit trusts include retirement plans of businesses to benefit their employees, such asincluding defined contribution plans, pensions and profit sharing plans. Westwood Trust may also be appointed as a trustee and may provide administrative support for these plans, as well as investment advisory and custodial services. Personal trusts are developed to achieve a number of different objectives and Westwood Trust acts as trustee to thesesuch trusts and assists them in developing tax-efficient trust portfolios. The feesFees charged by Westwood Trust are separately negotiated with each client and are typically based on the complexity of the operations of the trust and the amount of assets under management.

Services

Westwood Trust undertakes a fiduciary responsibility towardwith regard to the management of each client’s assets and utilizes a consultative asset allocation approach. This approach involves Westwood Trustour examining the client’s financial situation, including the client’s current portfolio of investments, and advising the client on ways in which it canto enhance its investment returns and strengthen its financial position. Westwood Trust also provides custodial services, safekeeping and accounting services.

Common Trust Funds

Westwood Trust sponsors a number of common trust funds in which our clients’client assets are commingled to achieve economies of scale. Westwood Trust’s common trust funds fall within two basic categories: personal trusts and employee benefit trusts. Westwood Trust sponsors common trust funds for most of the asset classesinvestment strategies managed by Westwood Management. Westwood Trust also engages third partythird-party subadvisors for some common trust funds, such as our Domestic Growth Equity, International Equity and High Yield Bond common trust funds.

Enhanced Balanced Portfolios

Westwood Trust is a strong proponent of asset class diversification and offers its clients the ability to diversify among multiplemany different asset classes. Westwood Trust Enhanced Balanced ™Balanced™ portfolios seek to combine these asset classes into a customizable portfolio for clients seeking to maximize return for a given level of risk. Periodic adjustments are made to asset class weightings in Enhanced Balanced ™ portfolios based on historical returns, risk and correlation data as well as an analysis ofand our current capital markets outlook.

Distribution Channels

We market our services through several distribution channels that allow us to expand the reach of our investment advisory services. These channels enable us to leverage existingthe distribution infrastructureinfrastructures and capabilities of other financial services firms and intermediaries while focusing on our core competency of developing outstandingand managing investment asset classes.strategies.

Institutional Investment Consultants

Investment management consulting firms serve as gatekeepers to manythe majority of corporate retirement plans, public retirement plans, endowments and foundations, which represent Westwood’s primary clientinstitutional target markets. Consultants provide guidance to their clients in setting asset allocation strategy, as well as creating investment policies. Consultants also make recommendations for investment firms they believe can best meet their client’s investment objectives. We have established strong relationships with many national and regional investment consulting firms, which has resulted inhave contributed to our being considered and hired by many of their clients. Continuing to enhance our existing consulting firm relationships, as well as forging new relationships, serves to increase the awareness of our services in both the consultant community and their underlyingserved institutional client base.

Subadvisory Relationships

Our subadvisory relationships allow us to extend the reach of our investment managementadvisory services to clients of other investment companies with broad, established distribution capabilities. In subadvisory arrangements, our client is typicallygenerally the investment company through which our services are offered to investors. In these subadvisory arrangements, our investment advisory services areinvestors, typically made available through retail-basedvia mutual fund offerings. The investment company that sponsors the mutual fund is responsible for relevant marketing, distribution, operationsoperational and accounting related to these funds.activities.

Managed Accounts

Managed accounts are similar in some respects to subadvisory relationships in that a third-party financial institution, such as a brokerage firm or turnkey asset management program provider, handles distribution to the end client. The end client in a managed account is typically a high net worth individual or small institution. In these arrangements, the third partythird-party financial institution is responsible to the end client for client service, operations and accounting.

Growth Strategy

We believe that we have established a strong platform to support future growth, deriving our strength in large part from the experience and capabilities of our management team and skilled investment professionals. We believe that this focused, stable team has contributed in large partsignificantly to our solid investment performance, superior client service and a growing array of asset classes.investment strategies. We believe that opportunities for future growth may come from our ability to:

Generate growth from new and existing clients and consultant relationships. As our primary business objective, we intend to maintain and enhance existing relationships with clients and investment consultants by continuing to provide solid investment performance and high quality customer service to existing relationships. Additionally, weattentive client service. We also intend to pursue growth through targeted sales and marketing efforts that emphasize our investment philosophy and performance and superior client service. New institutional client accounts are generally derived through investment consultants and we have been successful in developing soliddeveloped productive long-term relationships with many national and regional investment consultants. We believe that the familiarity within-depth knowledge of our firm, our people and our processes that we have builtembedded in our consultant and client relationships is one of thea key factors infactor when being considered for new client investment mandates.

Attract and retain key employees. In order to achieve our investment performance and client relationship objectives, we must be able to retain and attract talented investment professionals. We believe that we have created a workplace environment in which motivated, performance-driven, and client-oriented individuals thrive. As a public company, we are able to offer to our employees a compensation program that includes strong equity incentives such that their success will be closely aligned with the success of our employees will be closely tied to the success of our clients.clients and stockholders. We believe that these factors are critical ingredients in maintaining a stable, client-focused environment and accordingly we have built a firm that we believe can support significant future growth.

Grow assets in our additional asset classesexisting investment strategies. LargeCap Value isWe believe our flagship product and we believe it hasexisting, seasoned investment strategies have significant capacity for additional assets; however,assets. In order to further expand our offerings for current and prospective clients, we continuelaunched Westwood International in 2012, enabling us to develop additional asset classes in response to client needsoffer four new equity strategies that focus on emerging and the opportunities we see in the marketplace.global markets: Emerging Markets, Emerging Markets Plus, Global Equity and Global Dividend. We believe these additional asset classes providestrategies are experiencing strong demand from investors and represent significant growth opportunities for us to grow our assets under management. For instance, we have achieved meaningful growth in assetsus. Assets in our SMidCap Value product since we began marketing this asset classIncome Opportunity strategy grew substantially in 2011 and 2012, exceeding $1.7 billion at the end of 2012, as the strategy continued to institutions in 2004. As a result of this growth, the SMidCap Value asset class was closed to new institutional assets in 2009. The WHG SMidCapreceive strong interest from our private wealth and mutual fund remains open. We have also developed new asset classes in recent years that we intend to introduce to the institutional marketplace in the future. SmallCap Value has a six-year track record, Income Opportunity has compiled a seven-year track record and AllCap Value will soon complete an eight-year track record. We began marketing SmallCap Value to institutions in 2007 and it has already completed the approval process at many investment consulting firms, earning severalchannels as well as from additional institutional mandates. Our AllCap product has been receiving increased interest and was awarded several institutional mandates. In 2007, we launched an MLP portfolio in response to the needs of an existing client. We believe that we have the team in place to support these productsinvestment strategies in theour target institutional, marketplace.private wealth and mutual fund markets. If we continue to deliver strong investment performance, we believe that demand for these asset classesstrategies can provide meaningful growth in our assets under management.

Foster continued growth of the Westwood Trust platformplatform.. Westwood Trust has experienced solid growth in serving small-small to medium-sized institutions andas well as high net worth individuals.individuals and families. We are seeinganticipate continued interest from clients and prospects in theour diversified, highly attentive service model that we have developed.model. A significant percentage of new asset growth at Westwood Trust stems from referrals and gathering additional assets from existing clients. We believe the continued acceptance ofthat our Enhanced Balanced ™ product,strategy, which offers diversified exposure to multiple asset classes in a tax efficient,tax-efficient, comprehensive solution for clients, provides us with opportunities for future growth. Our 2010 acquisition of McCarthy Group Advisors, LLC in Omaha, Nebraska, enabled us to introduce Westwood Trust to a new market with attractive growth opportunities for our products and services.

Foster expanded distribution via mutual funds. The WHG Funds consist of WHGWe have ten funds in the Westwood Funds™ family: Westwood SMidCap (WHGMX), WHGWestwood Income Opportunity (WHGIX), WHGWestwood LargeCap Value (WHGLX), WHG Balanced (WHGBX) and WHGWestwood SmallCap Value (WHGSX), Westwood Dividend Growth (WHGDX), Westwood SMidCap Plus+ (WHGPX), Westwood Short Duration High Yield (WHGHX), Westwood Emerging Markets (WWEMX), Westwood Global Equity (WWGEX) and Westwood Global Dividend (WWGDX). We believe that providing investors access to our investment strategies via mutual funds is a key component to achieving asset growth in the defined contribution and retirement marketplaces as well as in the registered investment advisor distribution channel. With the exception of Westwood Short Duration High Yield, which were launched from 2005 through 2007. The WHGis subadvised by SKY Harbor Capital Management, LLC, the Westwood Funds which^TM mirror our institutional strategies,strategies. The funds offer capped expense ratios and are available in an institutional share class for all funds. In December 2007 we launched anWe also offer A shareshares for WHGWestwood LargeCap Value and WHG(WWLAX), Westwood Income Opportunity (WWIAX) and Westwood Emerging Markets (WWEAX) in order to target No Transaction Fee (“NTF”) mutual fund supermarket platforms and the broker/dealer marketplace. The WHG SMidCap Fund has been awarded a 5-star rating by Morningstar Inc., while WHG LargeCap, WHG Income Opportunity and WHG Balanced each have a 4-star rating.

Pursue strategic corporate development opportunities. We expect WHG SmallCap Value to be rated by Morningstar Inc. in 2010 after it completes its 3-year track record at the end of the first quarter 2010. In 2009 we reduced the expense cap for WHG Income Opportunity and WHG Balancedevaluate strategic corporate development opportunities carefully in order to increase their appeal to investors. We believe that access to our SMidCap Value, Income Opportunity, LargeCap Value, Balanced and SmallCap Value asset classes via an institutional mutual fund vehicle will present an attractive offering for certain segments of institutional investors, including 401(k) plans.

Pursue strategic acquisitions and alliances. We will carefully evaluate strategic acquisition, joint venture and alliance opportunities.augment organic growth. We may express an interest in pursuing acquisitionspursue various transactions, including acquisition of asset management firms, mutual funds or trust companies having assets where we have expertiseprivate wealth firms as well as hiring investment professionals or that appear appropriate as a means of expanding theteams. We consider opportunities to enhance our existing operations, expand our range of asset classesinvestment strategies and services or services we offer or expandingfurther develop our distribution capabilities. By acquiring investment firms or by hiring investment professionals or teams that successfully manage asset classesinvestment strategies beyond our current expertise, we could increase opportunities tocan attract new clients and provide existing clients with an even more diversified range of asset classes.investment strategies. We may also consider entering intoforging alliances with other financial services firms to allow us to leverage our core competency of developing superior investment productsstrategies in combination with alliance partners thatwho could provide us with enhanced distribution capabilities or provide our clients with access to additional service offerings.

Pursue opportunities internationally through targeted sales and relationships with international distributors. We may consider forging alliances with international financial services firms or partners that could provide enhanced distribution capabilities and greater access to global customers.

Continue strengtheningto strengthen our brand name. We believe that the strength of our brand name has been a key component to our successful long-term tenuresuccess in the investment industry and will continue to be instrumental to our future success. We have developed our strong brand name largely through excellent performance coupled with high profile coverage in various investment publications and electronic media. A numberSeveral of our investment professionals, including Ms. Byrne,Mark Freeman, David Spika, Investment Strategist, Mark Freeman, Senior Vice President, and Ragen Stienke, Vice President, enjoy aPatricia Perez-Coutts and Thomas Pinto Basto have been visible presence in print and electronic media whichand we believe enhances our brand name. We will continue to look for creative ways to strengthen our brand name and reputation in our target client markets.

Develop or acquire new investment strategies. We continue to look for opportunities to expand our range of investment strategies that we offer to existing and prospective clients. We may consider internally-developed strategies that extend our existing investment process to new markets and may also consider externally acquired investment strategies. An expanded range of investment strategies offers us additional ways to serve our client base, more diversified revenue streams as well as asset and revenue growth opportunities.

Competition

We are subject to substantial and growing competition in all aspects of our business. Barriers to entry to the asset management business are relatively low, and we believe that we willexpect to face a growing number of competitors. Although no one company dominates the asset management industry, many companies are larger, better known and have greater resources than us.

Further, we compete with other asset management firms on the basis of asset classesinvestment strategies offered, the investment performance of those asset classesstrategies both in absolute terms and relative to peer group performance,groups, quality of service, fees charged, the level and type of compensation offered to key employees, and the manner in which asset classesinvestment strategies are marketed. Many of our competitors offer more asset classesinvestment strategies and services than we do and may also have substantially greater assets under management.

We compete against numerous investment dealers, banks, insurance companies, mutual fund companies, exchange-traded funds, brokerage and investment firms, and others that sell equity funds, taxable income funds, tax-free investments and other investment products. In addition, the allocation of assets by many investors of assets from active equity investment to index funds, fixed income or similar asset classes has enhanced the ability of firms offering non-equity asset classes and passive equity management to compete with us effectively. In short, thesummary, our competitive landscape in which we operate is both intense and dynamic and there can be no assurance that we willmay not be able to compete effectively in the future as an independent company.

Additionally, most prospective clients perform a thorough review of an investment manager’s background, investment policies and performance before committing assets to that manager. In many cases, prospective clients invite a number of competing firms to make presentations. The process of obtaining a new client typically takes twelve to eighteen months from the time of the initial contact. While we have achieved a high degree of success in competing successfully for new clients, it is a process to which we must continue to dedicate significant resources over an extended period, with no certainty of success.

Regulation

Westwood Management

Virtually all aspects of our business are subject to federal and state laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and stockholders of registered investment advisers. Under such laws and regulations, agencies that regulate investment advisers like us have broad administrative powers, including the power to limit, restrict or prohibit advisers from carrying on their business in the event that they fail to comply with such laws and regulations. In such event, the possiblePossible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines. We believe that we are in substantial compliance with all material laws and regulations.

Our business is subject to regulation at both the federal and state levellevels by the SEC and other regulatory bodies. Westwood Management is registered with the SEC under the Investment Advisers Act of 1940 and under the laws of various states. As a registered investment adviser, Westwood Management is regulated and subject to examination by the SEC. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, record keeping requirements, operational requirements, marketing requirements and disclosure obligations. Westwood Management also acts as adviser to the Westwood Funds^TM, a family of mutual funds the WHG Funds, which are registered with the SEC under the Investment Company Act of 1940. As an adviser to a registered investment company, Westwood Management must comply with the requirements of the Investment Company Act and related regulations. The Investment Company Act imposes numerous obligations on registered investment companies, including requirements relating to operations, fees charged, sales, accounting, record-keeping,record keeping, disclosure, governance and restrictions on transactions with affiliates. Under the rules and regulations of the SEC promulgated pursuant to the federal securities laws, we are subject to periodic examination by the SEC.SEC examinations. The SEC is authorized tocan institute proceedings and impose sanctions for violations of the Investment Advisers Act and the Investment Company Act, ranging from censure to termination of an investment adviser’s registration. The failure of Westwood Management to comply with theSEC requirements of the SEC could have a material adverse effect on Westwood. We must also comply with anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001.2001, as subsequently amended and reauthorized. We believe that we are in substantial compliance with the requirements of the regulations under the Investment Advisers Act, the Investment Company Act and the USA PATRIOT Act.

Westwood Trust

Westwood Trust operates in a highly regulated environment and is subject to extensive supervision and examination. As a Texas chartered trust company, Westwood Trust is subject to the Texas Finance Code (the “Finance Code”), the rules and regulations promulgated under the Finance Code and supervision by the Texas Department of Banking. These laws are intended primarily for the protection of Westwood Trust’s clients and creditors rather than for the benefit of investors. The Finance Code provides for and regulates a variety of matters, such as:

The Finance Code also gives the Banking Commissioner broad regulatory powers (including penalties and civil and administrative actions) if the trust company violates certain provisions of the Finance Code or conservatorship or closure if Westwood Trust is determined to be in a “hazardous condition” (as defined by law). Westwood Trust’s failure to comply with the Finance Code could have a material adverse effect on Westwood.

Westwood Trust is limited by the Finance Code in the payment of dividends to undivided profits, which is described as that part of equity capital equal to the balance of net profits, income, gains, and losses since its formation date minus subsequent distributions to stockholders and transfers to surplus or capital under share dividends or appropriate board resolutions. At the discretion of its board of directors, Westwood Trust has made quarterly and special dividend payments to Westwood Holdings Group out of undivided profits.

Westwood International

Westwood International is registered with both the Ontario Securities Commission (“OSC”) and the Autorité des marchés financiers (“AMF”) in Quebec.

The OSC is an independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its statutory mandate is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. The OSC has rule-making and enforcement powers to help safeguard investors, deter misconduct and regulate participants involved in capital markets in Ontario. It regulates firms and individuals that sell securities and provide advice in Ontario, and also regulates public companies, investment funds and marketplaces, such as the Toronto Stock Exchange. The OSC’s powers are granted under the Securities Act (Ontario) the Commodity Futures Act (Ontario) and certain provisions of the Business Corporations Act. It operates independently from government and is funded by fees charged to market participants. The OSC is accountable to the Ontario Legislature through the Minister of Finance.

The AMF is the entity mandated by the government of Québec to regulate the province’s financial markets and provide assistance to consumers of financial products and services. Established on February 1, 2004 underan Act regarding the Autorité des marchés financiers, the AMF integrates the regulation of the Québec financial sector, notably in the areas of insurance, securities, deposit institutions (other than banks) and the distribution of financial products and services. The AMF’s mission is to enforce the laws governing the regulation of the financial sector, notably in the areas of insurance, securities, deposit institutions (other than banks) and the distribution of financial products and services. Specifically, the AMF’s mission is to:

Westwood International has entered into a Memorandum of Understanding (“MOU”) with Westwood Management pursuant to which Westwood International is considered a “participating affiliate” of Westwood Management. Subject to certain conditions, the SEC staff allows U.S. registered investment advisers to use portfolio management or research resources of advisory participating affiliates subject to the supervision of a registered adviser. Pursuant to the MOU, Westwood International professionals can provide advisory and subadvisory services to U.S clients subject to SEC rules and regulations and under the supervision of Westwood Management.

Employee Retirement Income Security Act of 1974

We are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to the related regulations, insofar as we are a “fiduciary” under ERISA with respect to some of our clients. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA or whoon those that provide services to ERISA plan clients and prohibit certain transactions involving ERISA plan clients. Our failure to comply with these requirements could have a material adverse effect on us.effect.

Our employees may from time to time own shares of the funds we manage. Employee transactions in these funds and most other individual investments by employees require prior clearance and reporting of all securities transactions, and we restrict certain transactions to avoid the possibility of conflicts of interest.

Employees

At December 31, 2009,2012, we had 6496 full-time employees including 27 investment management, research(85 based in the United States and trading professionals, 19 marketing and client service professionals, and 18 operations and business management professionals.11 based in Canada). No employees are represented by a labor union and we believe our employee relations to be good.

Segment informationInformation

For information about our operating segments, Westwood ManagementAdvisory and Westwood Trust, please see footnoteNote 14 “Segment Reporting” into the financial statements accompanying this Report.

Item 1A.

Risk Factors

We believe these represent the material risks currently facing our business. Our business, financial condition or results of operations could be materially adversely affected by these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. You should carefully consider the risks described below before making an investment decision. You should also refer to the other information included or incorporated by reference in this Report, including our financial statements and related notes.

Poor investment performance of assets managed by us could adversely affect our results of operations.

Because we compete with many asset management firms on the basis of asset classes offered and the investment performance of those asset classes,strategies we offer, our success is dependent to a significant extent on the investment performance of the assets that we manage. Because our revenue is primarily generated from fees derived as a percentage of assets under management, poor performance tends to result in the loss or reduction of client accounts, which correspondingly decreases revenues. Underperformance relative to peer groups for our various asset classesinvestment strategies could adversely affect our results of operations, especially if such underperformance continues for a lengthy period of time.

Recently, we have experienced some client outflows that we believe may have resulted in part from the underperformance of our LargeCap Value strategy, which invests in equity securities of companies with large market capitalizations and which represents about 37% of our assets under management. Our LargeCap Value strategy underperformed its Russell 1000 Value benchmark index and ranked below the median return of its peer group in 2010 and 2011. Our LargeCap Value strategy underperformed relative to its Russell 1000 Value benchmark, but ranked above the median return of its peer group, in 2012. While we believe this recent underperformance has resulted in some increased client outflows, many factors are involved in client investment and allocation decisions and we cannot specifically quantify the amount of outflows resulting from this recent underperformance.

Some managementkey employees are considered critical to our success, and our inability to attract and retain key employees could compromise our future success.

We believe that our future success will depend to a significant extent upon the services of our executive officers,certain key employees, particularly Susan M. Byrne, our Chairman of the BoardBrian O. Casey, President and Chief Executive Officer, Mark Freeman, Chief Investment Officer, and Brian O. Casey, our President and Chief Executive Officer.Patricia Perez-Coutts, Senior Portfolio Manager. As with other asset management businesses, our future performance depends to a significant degree upon the continued contributions of these and other key officers, investment professionals, as well as marketing, client service and management personnel. There is substantial competition for skilled personnel and the loss of one or more of our key employees or our failure to attract, retain and motivate qualified personnel, could negatively impact our business, financial condition, results of operations and future prospects.

Our revenues are dependent upon the performance of the securities markets and negative performance of the securities markets could reduce our revenues.

Our results of operations are affected by many economic factors, including the performance of the securities markets. Negative performance within the securities markets or short-term volatility within the securities markets could result in investors withdrawing assets, decreasing their rates of investment or shifting assets to cash or other asset classes or strategies that we do not manage, all of which could reduce our revenues. Because most of our revenues are based on the value of assets under management, a decline in the value of those assets would also adversely affect our revenues. In addition, in periods of slowing growth or declining revenues, profits and profit margins are adversely affected because certain expenses remain relatively fixed.

In particular, more than halfa significant portion of our assets under management areis invested in equity securities of companies with a large market capitalization.capitalizations. As a consequence, we are particularly susceptible to the volatility associated with changes in the market for large capitalization stocks. Due to this concentration, any change or reduction in such markets, including a shift of our clients’ and potential clients’ preference from investments in equity securities of large capitalization stocks to other equity or fixed income securities could have a significant negative impact on our revenues and results of operations. This negative impact could occur due to the depreciation in value of our assets under management, the election by clients to select other firms to manage their assets or the election by clients to allocate assets away from asset classes that we manage. Any of these events would result in decreased assets under management and therefore reduced revenues and a decline in results of operations.

If we are unable to realize benefits from the costs we have incurred and are continuing to incur to develop new asset classesinvestment strategies and otherwise broaden our capabilities, our growth opportunities may be adversely affected.

We have incurred significant costs during the last several years to develop new asset classes,investment strategies, including Emerging Markets, Global Equity, Global Dividend, SmallCap Value, AllCap Value, Income Opportunity, MidCap, LargeCap Enhanced (130/30) andGlobal Strategic Diversification, an MLP portfolio and SMidCap Plus+, to launch five new mutual funds under the WHGWestwood Funds^TM name and to upgrade our business infrastructure.infrastructure and we expect to continue to incur significant costs to develop and launch new investment strategies. Some of the costs associated with these improvements and new investment strategies will continue to be incurred in future periods and are relatively fixed. We may not realize the benefits of these investments and, in the event we are not ableif unable to do so, our results of operations and growth opportunities may be adversely affected.

Expansion into international markets and introduction of new products and services increases our operational, regulatory and other risks.

We have expanded our product offerings and international business activities over the last year with the establishment of Westwood International and its global and emerging markets strategies. As a result, we face increased operational, regulatory, compliance, reputation and foreign exchange rate risks. The failure of our compliance and internal control systems to properly mitigate such additional risks, or of our operating infrastructure to support international activities, could result in operational failures and actions by regulatory agencies, which could have a material adverse effect on our business.

Due to the substantial cost and time required to introduce new asset classesinvestment strategies in our industry, we may not be able to successfully introduce new asset classesinvestment strategies in a timely manner, or at all.

The development and marketing of new asset classes in our industryinvestment strategies, whether through acquisition or internal development, requires a substantial amount of time and significant financial resources.resources, including expenses related to compensation, sales and marketing, information technology, legal counsel and other professional services. Our ability to market and sell a new asset class successfullyinvestment strategy depends on our financial resources, the investment performance results of the specific asset class,strategy, the timing of the offering and our marketing strategies. Once an asset classinvestment strategy is developed, whether through acquisition or internal development, we must still effectively market the asset classstrategy to our existing and prospective clients. This entails incurring substantial financial costs related to research on the target assets and the demand for such asset class in the market, as well as sales and marketing costs associated with attracting assets to the new asset class. In addition, ourOur ability to sell new asset classesinvestment strategies to our existing and prospective clients depends on our ability to meet or exceed the performance of our competitors who offeroffering the same or a similar asset classes.strategy. We may not be able to manage the assets within a given asset classinvestment strategy profitably. Moreover, it may take years before we are able to produce the level of results that will enable us to attract clients. If we are unable to realize the benefits of the costs and expenses incurred in developing new asset classes,investment strategies, we may experience losses as a result of our management of these asset classes,investment strategies, and our ability to introduce further new asset classesinvestment strategies and compete in our industry may be hampered.

Our business is dependent on investment advisory, subadvisory and trust agreements that are subject to termination or non-renewal. As a result, we could lose any of our clients on very short notice.

Substantially all of our revenues are derived pursuant to investment advisory, subadvisory and trust agreements with our clients. In general, either party may terminate these agreements upon 30 days’ notice. Any termination of, or failure to renew, a material number of these agreements could have a material adverse impact on us, particularly because many of our costs are relatively fixed.

A small number of clients account for a substantial portion of our business. As such, the reduction or loss of business with any of these clients could have ana material adverse impacteffect on our business, financial condition and results of operations.

One of our largest clients in terms of assets paid us both asset-based and performance-based advisory fees two of the last three years. Due to a significant performance fee earned in 2008, this client accounted for 19.5% of our fee revenues for the year ended December 31, 2008; however, this client did not pay us a performance fee in 2009 and accounted for less than 1% of our revenues for the year ended December 31, 2009.

Our four largest clients accounted for approximately 13.1%12.6% of fee revenues for the year ended December 31, 2009.2012. We are therefore dependent to a significant degree on our ability to maintain our existing relationships with these clients. There can be no assurance that we will be successful in maintaining these existing client relationships, securing additional clients or achieving the superior investment performance necessary to earn a performance-based advisory fee.fees. Any failure by us to retain one or more of these large clients or establish profitable relationships with additional clients could have a material adverse effect on our business, financial condition and results of operations.

Competitive fee pressures could reduce revenues and profit margins.

The investment management business is highly competitive and has relatively low barriers to entry. To the extent we have to compete on the basis of price, we may not be able to maintain our current fee structure. Although our investment management fees vary from product to product, we have competed primarily on the performance of our products and client service rather than on the level of our investment management fees relative to our competitors. In recent years there has been a trend toward lower fees in the investment management industry. In order to maintain our fee structure in a competitive environment, we must be able to continue to provide clients with investment returns and service that make investors willing to pay our fees. We cannot be assured that we will succeed in providing investment returns and service that will allow us to maintain our current fee structure. Fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations.

Performance fees could have a significant effect on our revenues and results of operations.

We have performance fee agreements with a small number of ourfew clients, which would pay us a fee if we outperform a specified index over predetermined periods of time. There canWe may not be no assurance that we will perform well relativeable to outperform such indexes and the failure to do so would cause us to earn none or only part of those potential revenues, which would have a material adverse effect on our revenues and results of operations. Our revenues from performance-based fees could fluctuate significantly from one measurement period to the next, depending on how we perform relative to the indexes specified in these agreements. For example, we earned a significant performance feefees of $1.3 million in 2008,2012 and $1.0 million in 2011, but did not earn a performance fee in 2009.2010.

Any event that negatively affects the asset management industry in general could have a material adverse effect on us.

Any event affecting the asset management industry that results in a general decrease in assets under management or a significant general decline in the number of advisory clients or accounts could negatively impact our revenues. Our future growth and success depends in part upon the growth of the asset management industry.

Our business is subject to extensive regulation with attendant costs of compliance and serious consequences for violations.

Virtually all aspects of our business are subject to various laws and regulations, including the Investment Advisers Act, the Investment Company Act, and anti-money laundering laws. These laws and regulations generally grant regulatory agencies broad administrative powers, including the power to limit or restrict us from operating our business as well as the powers to place us under conservatorship or closure in the event we fail to comply with such laws and regulations. Violations of such laws or regulations could subject us and/or our employees to disciplinary proceedings and civil or criminal liability, including revocation of licenses, censures, fines or temporary suspension,suspensions, permanent barbarring from the conduct of business, conservatorship, or closure. Any such proceeding or liability could have a material adverse effect upon our business, financial condition, results of operations and business prospects. Due to the extensive regulations and laws to which we are subject, our management is required to devotedevotes substantial time and effort to legal and regulatory compliance issues.

In recent years, regulators have shown an increasing interest in oversight of the financial services industry. Some newly adopted regulations are focused directly on the investment management industry, while others are more broadly focused but affect our industry as well. The Dodd-Frank Act of 2010 significantly increased and revised the federal rules and regulations governing the financial services industry and, in addition to other regulations, has generally resulted in increased compliance and administrative burdens for us. For example, the SEC’s recent adoption of Form PF and revisions to Form ADV impose additional reporting requirements for SEC registered investment advisors, including us. Additionally, ERISA Section 408(b)(2) and related regulations require additional information to be provided to ERISA-governed retirement plans. While we believe that changes in laws, rules and regulations, including the ones discussed above, have increased our administrative and compliance costs, we are not able to quantify the amount of increased costs attributable to those changes.

In addition, the regulatory environment in which we operate is subject to change. We may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations. See ““Item 1. Business — Regulation.”

Misuse of assets and information in the possession of our investment professionals and employees could result in costly litigation and liability for us and our clients.

Our investment professionals handle a significant amountamounts of assets along with financial and personal information for our clients. Although weWe have implemented a system of controls to minimize the risk of a fraudulent taking or misuseuse of assets and information, there can be no assurance thathowever our controls willmay not be sufficiently adequate to prevent such fraudulent actions by our portfolio managers or employees. If our controls are ineffective, in preventing the fraudulent taking or misuse of assets and information, we could be subject to costly litigation, which could consume a substantial amount of ourfinancial resources, distract our management from our operations, and could also result in regulatory sanctions. Additionally, any suchSuch fraudulent actions could also adversely affect some of our clients, in other ways, and these clients couldcausing them to seek redress against us.redress.

Acquisitions involve inherent risks that could compromise the success of the combined business and dilute the holdings of current stockholders.

As part of our long-term business strategy, we may consider acquisitionspursue corporate development transactions including the acquisition of similarasset management firms, mutual funds, private wealth firms, investment professionals or complementary businesses.teams. See ““Item 1. Business — Growth Strategy.” If we are not correctincorrect when we assessassessing the value, strengths, weaknesses, liabilities and potential profitability of acquisition candidatessuch transactions, or if we are not successful in integrating the operations offail to integrate the acquired businesses or individuals, the success of the combined business could be compromised. Any futurebusiness acquisitions will be accompanied byare subject to the risks commonly associated with acquisitions. These risks include,such transactions including, among others, potential exposure to unknown liabilities of acquired companies and to acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the acquired companies, the potential disruptiondisruptions to the business of the combined company and potential diversion of management’s time and attention, the impairment of relationships with and the possible loss of key employees and clients as a result of the changes in management, potential futurelitigation or other legal risks, potential write-downs related to goodwill impairmentimpairments in connection with acquisitions, and dilution to the stockholders of the combined company if the acquisition is made for stock of the combined company. In addition, asset classes,investment strategies, technologies or businesses of acquired companies may not be effectively assimilated into our business or may have a positivenegative effect on the combined company’s revenues or earnings. The combined company may also incur significant expense to complete acquisitions and to support the acquired asset classesinvestment strategies and businesses. Further, any such acquisitions may be funded with cash, debt or equity, which could have the effect of diluting the holdings or limiting the rights of stockholders. Finally, we may not be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms.

Our acquisitions were forecasted to add revenues, expenses and earnings to our business. The failure to realize these revenues and earnings could adversely impact our results of operations.

The McCarthy acquisition may not yield the benefits that we forecasted due to a variety of factors, including our failure to retain the clients of the businesses we acquired. If this acquisition does not yield the expected benefits, our revenues and results of operations could be negatively impacted and we could be required to record an impairment against earnings for the intangible assets and goodwill acquired in this transaction.

Damage to our reputation could harm our business and have a material adverse effect on our results of operations.

Our brand is a valuable intangible asset that could be vulnerable to threats that can be difficult or impossible to anticipate or control. Regulatory inquiries and rumors could damage our reputation, even if they are unfounded or satisfactorily addressed. Damage to our brand could impede our ability to attract and retain customers and key employees, and reduce our assets under management, which could have a material adverse effect on our results of operations.

We are engaged in litigation related to the hiring of some employees of Westwood International that, depending on the outcome, could increase our expenses and have a material adverse effect on our results of operations.

On August 3, 2012, AGF Management Limited and AGF Investments Inc. (“AGF”) filed a lawsuit in the Ontario Superior Court of Justice against Westwood, certain Westwood employees and executive recruiting firm Warren International, LLC. The action relates to the hiring of certain members of Westwood’s global and emerging markets investment team who were previously employed by AGF, including Ms. Patricia Perez-Coutts. AGF is alleging that the former employees breached certain obligations when they resigned from AGF, and that Westwood and Warren induced such breaches. AGF is seeking an unspecified amount of damages and punitive damages of $10 million (CAD) in the lawsuit. On November 5, 2012, Westwood issued a response to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood is seeking $1 million (CAD) in general damages, $10 million (CAD) in special damages, $1 million (CAD) in punitive damages and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and Ms. Perez-Coutts, alleging that Ms. Perez-Coutts made defamatory statements about AGF. In this second lawsuit, AGF is seeking $5 million (CAD) in general damages, $1 million (CAD) per defendant in punitive damages, unspecified special damages, interest and costs.

While we intend to vigorously defend both actions and pursue the counterclaims, we are currently unable to estimate the ultimate aggregate amount of monetary gain, loss or financial impact of these actions and counterclaims. Defending these actions and pursuing these counterclaims may be expensive for us and time consuming for our personnel. While we do not currently believe these proceedings will have a material impact, adverse resolutions of these actions and counterclaims could have a material adverse effect on our business, financial condition or results of operations.

Our business involves risks of being engaged in litigation and liability that could increase our expenses and reduce our results of operations.

Many aspects of our business involve substantial risks of liability. We could be named as defendants or co-defendants in lawsuits or could be involved in disputes that involve the threat of lawsuits seeking substantial damages. As an SEC-registered adviser, mutual fund adviser and publicly traded entity, we are subject to governmental and self-regulatory organization examinations, investigations and proceedings. Similarly, the investment strategies that we manage could be subject to actual or threatened lawsuits and governmental and self-regulatory organization investigations and proceedings, any of which could harm the investment returns or reputation of the applicable fund or result in our being liable for any resulting damages. There has been an increased incidence of litigation and regulatory investigations in the asset management industry in recent years, including customer claims as well as class action suits seeking substantial damages.

We may be unable to fully realize deferred tax assets related to net operating losses at Westwood International.

As a result of start-up and ongoing operating costs, we have incurred net operating losses at Westwood International, our Canadian subsidiary. We have not recorded an allowance against the related deferred tax asset, as we currently anticipate that it is more-likely-than-not that we will generate sufficient taxable income at Westwood International to utilize these net operating losses. However, forecasting results involves making significant assumptions and estimates about future events. If those forecasts are incorrect, we could be required to record valuation allowances against the net operating loss deferred tax assets, which would reduce our net income in future periods.

Various factors may hinder the declaration and payment of dividends.

We have historically paid a quarterly dividend. However, the payment of future dividends is subject to the discretion of our Board of Directors, and various factors may prevent us from paying dividends. Such factors include our financial position, capital requirements and liquidity, the existence of a stock repurchase program, state corporate and banking law restrictions, results of operations and such other factors as our Board of Directors may consider relevant. In addition, as a holding company, our ability to pay dividends is dependent on the dividends and income we receive from

our subsidiaries. At the present timeCurrently, our primary source of cash isconsists of dividends that may be received from Westwood Management or Westwood Trust. The payment of dividends by Westwood Management or Westwood Trust is subject to the discretion of their Boards of Directors and compliance with applicable laws, including, in particular, the provisions of the Texas Finance Code applicable to Westwood Trust. Westwood International currently is not generating income and is consequently unable to contribute cash to the payment of dividends to our shareholders and will likely require additional contributions of capital until it begins generating operating income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our business is vulnerable to systems failures that could have a material adverse effect on our business, financial condition and results of operations.

Any delays or inaccuracies in securities pricing information or information processing could give rise to claims against us, which could have a material adverse effect on our business, financial condition and results of operations. We are highly dependent on communications and information systems and on third partythird-party vendors for securities pricing information and updates from certain software. We may suffer a systems failure or interruption, whether caused by an earthquake, fire, other natural disaster, power or telecommunications failure, unauthorized access, act of God, act of war or otherwise, and our back-up procedures and capabilities may not be adequate or sufficientinadequate to eliminate the risk of extended interruptions in operations.

Failure to implement and maintain effective cyber security controls could disrupt our operations and have a material adverse effect on our results of operations and stock price.

Our business is dependent on information technology systems and the cyber security controls we have in place to protect those systems and the information contained therein. A failure of our controls to protect our information technology from an external or internal attack or to prevent a breach of confidential client or competitive information could materially interrupt our operations and expose us to regulatory and legal actions, which could have a material adverse effect on our operating results, reputation and stock price.

We may not be able to fund future capital requirements on favorable terms, if at all.

We cannot be certain that financing to fund our working capital or other cash requirements, if needed, will be available on favorable terms, if at all. Our capital requirements willmay vary greatly from quarter to quarter depending on, among other things, capital expenditures, fluctuations in our operating results and financing activities. If future financing isbecomes necessary, we may or may not be able to obtain financing on favorable terms, if at all. Further, any future equity financings could dilute the relative percentage ownership of the then existing holders of our common stock,stockholders and any future debt financings could involve restrictive covenants that limit our ability to take certain actions.

Failure to maintain effective internal controls could have a material adverse effect on our business and stock price.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our brand and operating results could be harmed. All internal control systems, no matter how well designed, have inherent limitations. Therefore,limitations and even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We cannot be certain that the measures we take to evaluate and improve our internal controls will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended, from time to time; we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. In addition, failureFailure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.

Our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock.

Our organizational documents contain provisions that require a vote of two-thirds of the shares of stock entitled to vote to remove directors for cause, establish that stockholders cannot act by written consent, and that authorize our boardBoard of directorsDirectors to issue, without shareholder approval, blank check preferred stock. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law relating to business combinations. These provisions could delay, deter or prevent a merger, consolidation, tender offer or other business combination or change of control involving us that could include a premium over the market price of our common stock that some or a majority of our stockholders might consider to be in their best interests.

We are a holding company and are dependent on the operations and funds of our subsidiaries.

We are a holding company, with no revenue generating operations and no assets other than our ownership interests in Westwood Management, Westwood Trust and Westwood Trust.International. Accordingly, we are dependent on the cash flow generated by these operating subsidiaries and must rely on dividends or other intercompany transfers from theseour operating subsidiaries to generate the funds necessary to meet our obligations.

None.

Westwood, Westwood Management and Westwood Trust conduct their principal operations through aapproximately 25,555 square feet of leased property with approximately 21,600 square feetoffice space located in Dallas, Texas. TheTexas pursuant to a lease with an initial term that expires in November 2021. In addition, we lease approximately 5,045 square feet of office space in Omaha, Nebraska pursuant to a lease with an initial term that expires in July 2014 and approximately 4,071 square feet of office space in Toronto, Ontario pursuant to a lease with an initial term that expires on September 29, 2013. We are evaluating office space locations to meet our needs beyond the initial term of the lease agreement expires in May 2011.Toronto lease. We believe these facilities will be adequate to serve our currently anticipated business needs.

We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. We

On August 3, 2012, AGF Management Limited and AGF Investments Inc. (“AGF”) filed a lawsuit in the Ontario Superior Court of Justice against Westwood, certain Westwood employees and executive recruiting firm Warren International, LLC. The action relates to the hiring of certain members of Westwood’s global and emerging markets investment team who were previously employed by AGF, including Ms. Patricia Perez-Coutts. AGF is alleging that the former employees breached certain obligations when they resigned from AGF, and that Westwood and Warren induced such breaches. AGF is seeking an unspecified amount of damages and punitive damages of $10 million (CAD) in the lawsuit. On November 5, 2012, Westwood issued a response to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood is seeking $1 million (CAD) in general damages, $10 million (CAD) in special damages, $1 million (CAD) in punitive damages and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and Ms. Perez-Coutts, alleging that Ms. Perez-Coutts made defamatory statements about AGF. In this second lawsuit, AGF is seeking $5 million (CAD) in general damages, $1 million (CAD) per defendant in punitive damages, unspecified special damages, interest and costs.

While we intend to vigorously defend both actions and pursue the counterclaims, we are currently unable to estimate the ultimate aggregate amount of monetary gain, loss or financial impact of these actions and counterclaims. Defending these actions and pursuing these counterclaims may be expensive for us and time consuming for our personnel. While we do not currently believe the outcome of these proceedings will have a material impact, adverse resolution of these actions and counterclaims could have a material adverse effect on our business, financial position, operationscondition or cash flow.results of operations.

PART II

Market Information

Our common stock has traded on the New York Stock Exchange (the “NYSE”) under the symbol “WHG” since July 1, 2002. At December 31, 2009,2012, there were approximately 170175 record holders of our common stock, although we believe that the number of beneficial owners of our common stock is substantially greater. The table below sets forth the high and low sale prices for the common stock, as reported by the NYSE for the periods indicated.