supervisory and other requirements.

The SEC and its staff continue to engage in various initiatives and reviews that seek to modify the regulatory structure governing the asset management industry, and registered investment companies in particular.  In late 2016, the SEC adopted new rules that require registered open-end funds to adopt liquidity risk management programs with specific requirements for measuring and reporting the liquidity of fund holdings, including the requirement to bucket every portfolio holding within one of four prescribed liquidity buckets.  The SEC has also been directed toward risk identification and controls in trading practices, cybersecurity and the evaluation of systemic risks and has indicated an intention to propose new rules for transition planning by asset managers, including the transfer of client assets.  In 2019, the SEC re-proposed a rule regulating the use of derivatives by registered investment companies on its regulatory agenda. Among other requirements, the rule, as proposed, would require our Funds to adopt a derivatives risk management program unless they qualify for certain exceptions and would limit the degree to which our Funds may invest in derivatives based on certain “value at risk” metrics.  

Intellectual Property

We regard our names as material to our business and have registered certain service marks associated with our business with the United States Patent and Trademark Office.

EmployeesHuman Capital

At December 31, 20182020, we had 1,332 full‑time1,116 full-time employees, consisting of 1,1981,053 home office employees and 13463 employees responsible for field supervision and administration.  Women represented 44 percent of our workforce while those ethnically diverse represented 16 percent.

As an organization, we have taken specific action to advance our position as a values-based and purpose-driven organization and believe that supporting an environment that welcomes diverse thoughts, perspectives and experiences fosters stronger organizational growth.  We are constantly challenging ourselves to ensure that our workforce is a reflection of our values and the communities we serve.  To that end, we have engaged dedicated diversity and inclusion resources, and taken steps to enhance and continue to welcome diversity in all forms in our organization.  Our CEO has signed the CEO Action for Diversity & Inclusion™ pledge, acknowledging that the Company will act to cultivate trust, diversity, flexibility and understanding.  In addition, our employees were invited to sign the I ACT ON pledge to check bias, speak up for others and show up for all.  We also offer our employees ongoing opportunities for education and training exploring bias and inclusion, designed to create conversations around the impact of natural biases and how the organization can continue to foster an environment of belonging and an inclusive workplace.

Our Culture Connections initiative is our version of employee resource groups, which are focused around five important pillars of our culture: Diversity & Inclusion, Employee Appreciation, Philanthropy, Strategy & Values, and Well-being.  These employee groups represent a variety of roles, levels and diverse backgrounds and provide opportunities for all employees to elevate the employee experience and strengthen our culture.

We are partnering with organizations like Rock The Street Wall Street to encourage young females to consider careers in financial services.  We started a partnership with the Forte Foundation, a non-profit organization connecting female MBA students and recent graduates with job opportunities in the financial services industry.  In addition, we became a sponsor of Kansas City Women in Technology, a non-profit organization whose vision is to grow the number of women in technology careers within Kansas City.  We launched a new employee mentoring program that enabled all employees to either connect with a mentor or act as a mentor to colleagues.  The goal of our mentoring program is to actively support employees as they pursue personal and professional goals, which we believe leads to higher levels of engagement and retention.

Our work in fostering a culture of belonging was recognized in 2020 as Waddell & Reed Financial, Inc. was named a finalist for the Diversity Champions award by InvestmentNews.  We, along with other firms, were chosen from over 120 nominations for the firm’s ability to inspire others from diverse backgrounds to join, flourish and bring their authentic selves to work in the financial services industry.

In addition, see the “Response to the Coronavirus Disease 2019 (“COVID-19”)” and “Competition” sections in this Item 1 for additional information related to employee safety, recruiting and our competitive benefits offerings.

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Available Information

We make available free of charge our proxy statements, Annual Reports on Form 10‑K,10-K, quarterly reports on Form 10‑-Q, current reports on Form 8‑K8-K and amendments to those reports under the “Reports & SEC Filings” menu on the “Investor Relations” section of our internet website at ir.waddell.com as soon as reasonably practical after such filing has been made with the SEC.

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ITEM 1A.   Risk Factors

You should carefully consider the following risk factors as well as the other risks and uncertainties contained in this Annual Report on Form 10‑K10-K or in our other SEC filings. The occurrence of one or more of these risks or uncertainties could materially and adversely affect our business, financial condition, operating results and cash flows. In this Annual Report on Form 10‑K,10-K, unless the context expressly requires a different reading, when we state that a factor could “adversely affect us,” have a “material adverse effect on our business,” “adversely affect our business” and similar expressions, we mean that the factor could materially and adversely affect our business, financial condition, operating results and cash flows. Information contained in this section may be considered “forward‑looking“forward-looking statements.” See “Part I—Forward Looking Statements” for a discussion of cautionary statements regarding forward‑lookingforward-looking statements.

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RISKS RELATED TO THE PROPOSED MERGER

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Regulatory Approvals May Not Be Received, May Take Longer Than Expected Or May Impose Conditions That Are Not Presently Anticipated Or Cannot Be Met.  Before the transactions contemplated by the Merger Agreement may be completed, various approvals must be obtained from regulatory authorities. These regulatory authorities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on the combined company following the merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the merger that are not anticipated or cannot be met. If the consummation of the merger is delayed, including by a delay in receipt of necessary regulatory approvals, our business, financial condition and results of operations may also be materially and adversely affected. See the section entitled “The Merger-Regulatory Approvals Required for the Merger” in our definitive proxy statement filed with the SEC on February 17, 2021 (the “Proxy Statement”).

Failure Of The Merger To Be Completed, The Termination Of The Merger Agreement Or A Significant Delay In The Consummation Of The Merger Could Negatively Impact Us.  The Merger Agreement is subject to a number of conditions, which must be fulfilled in order to complete the merger. Please see the section entitled “The Agreement and Plan of Merger-Conditions to the Merger” in the Proxy Statement. These conditions to the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed or significantly delayed. In addition, if the merger is not completed by December 2, 2021, either Macquarie or we may choose to terminate the Merger Agreement at any time after that date if the failure to consummate the transactions contemplated by the Merger Agreement is not caused by a breach in any material respect of the Merger Agreement by the party electing to terminate the Merger Agreement.  Furthermore, the consummation of the merger may be significantly delayed due to various factors, including potential litigation related to the merger.

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If the merger is not consummated or is significantly delayed, our ongoing business, financial condition and results of operations may be materially adversely affected, and the market price of our common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be consummated. If the consummation of the merger is delayed, including by the receipt of a competing acquisition proposal, our business, financial condition and results of operations may be materially adversely affected.

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In addition, we have incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the merger is not completed or is significantly delayed, we would have to recognize many of these expenses without realizing the expected benefits of the merger. Any

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of the foregoing, or other risks arising in connection with the failure of or delay in consummating the merger, including the diversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on our ability to make significant changes to our ongoing business during the pendency of the merger, could have a material adverse effect on our business, financial condition and results of operations.

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Additionally, our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger, and the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the merger will be completed. If the Merger Agreement is terminated and our board of directors seeks another merger or business combination, our stockholders cannot be certain that we will be able to find a party willing to engage in a transaction on more attractive terms than the merger.

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We Will Be Subject To Business Uncertainties And Contractual Restrictions While The Merger Is Pending.  Uncertainty about the effect of the merger on employees, clients, Advisors or vendors may have an adverse effect on our business, financial condition and results of operations. These uncertainties may impair our ability to attract, retain and motivate employees and Advisors and attract and retain clients pending the consummation of the merger. Additionally, these uncertainties could cause our vendors and others with whom we deal to seek to change, or fail to extend, existing business relationships with us. In addition, competitors may target our existing clients by highlighting potential uncertainties and integration difficulties that may result from the merger.

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The pursuit of the merger and the preparation for the integration may place a burden on our management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on our business, financial condition and results of operations.

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In addition, the Merger Agreement restricts us from taking certain actions without Macquarie’s consent while the merger is pending. If the merger is not completed, these restrictions could have a material adverse effect on our business, financial condition and results of operations. Please see the section entitled “The Agreement and Plan of Merger-Covenants Regarding Conduct of Business by the Company and its Subsidiaries Prior to the Merger” in the Proxy Statement for a description of the restrictive covenants applicable to us.  Certain of the risk factors set forth in this Annual Report on Form 10-K could be heightened by these Merger Agreement restrictions resulting in a material adverse effect on our business, results of operations or financial condition.

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Litigation Against Us Or The Members Of Our Board of Directors Could Prevent Or Delay The Completion Of The Merger.  While we believe that any claims asserted by purported stockholder plaintiffs related to the merger are without merit, the results of any such legal proceedings are difficult to predict and could delay or prevent the merger from being competed in a timely manner. Moreover, any litigation could be time consuming and expensive and could divert our management’s attention away from their regular business, and any lawsuit adversely resolved against us or members of our board of directors could have a material adverse effect on our business, financial condition and results of operations.

The conditions to the consummation of the merger include the absence of any law, injunction or governmental order restraining, enjoining or prohibiting the consummation of the transactions contemplated by the Merger Agreement and the absence of any law, injunction or governmental order initiated by a governmental entity restraining, enjoining or prohibiting the consummation of Macquarie’s sale of our wealth management business to LPL Holdings, Inc. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a regulatory authority issues an order or other directive having the effect of making the merger illegal or otherwise prohibiting consummation of the merger, then such injunctive or other relief may prevent the merger from becoming effective in a timely manner or at all.

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MARKET AND COMPETITION RISKS

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We Could Experience Adverse Effects On Our Market Share Due To Strong Competition From Numerous And Sometimes Larger Companies.Competition. The investment management industry is highly competitive.  We compete with stock brokerageinvestment management firms, mutual fund wealth management

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companies, investment banking firms, insurance companies, banks, internet investment sites, mobile investment products, automated financial advisors, registered investment advisers, and other financial institutions and individuals based on a number of factors, including investment performance, the level of fees charged, the quality and diversity of products and services offered, name recognition and reputation, and the ability to develop new investment strategies and products to meet the changing needs of investors. Many of these competitors not only offer mutual fund investments and services, but also offer an ever-increasing number of other financial products and services. Many of our competitors have more products and product lines, services and have better brand recognition and also may have substantially greater AUM.recognition.  See Item 1 – “Business – Competition.”

Many larger mutual fund complexes have developed more extensive relationships with brokerage houses that have large distribution networks, which may enable those fund complexes to reach broader client bases. In recent years, there has been a trend of consolidation in the mutual fund industry resulting in stronger competitors with greater financial resources than us.

There has also been a trend toward online internet financial services and financial services that are based on mobile applications or automated processes as clients increasingly seek to manage their investment portfolios digitally.  This is leading to increased utilization of “robo” adviser platforms.  If existing or potential clients decide to invest with our competitors instead of with us, our market share could decline, which could have a material adverse effect on our business.

We have faced significant competition in recent years from lower fee, passive investment strategies.  Investment advisers that emphasize passive products have gained, and may continue to gain, market share from active managers like us, which could have a material impact on our business.   

We Could Lose Market Share To Competitors That Have Broader Investment Product Offerings.There are a number of asset classes and product types that are not well covered by our current products and services. When these asset

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decline, and our operating results would be adversely affected. Further, any adverse performance of those Funds may also indirectly affect the net sales and redemptions in our other products, which in turn, may adversely affect our business.  We have experienced net outflows in recent years due in part to underperformance of our mutual funds and depressed sales. During fiscal years 2018 and 2017, we had $10.4 billion and $11.4 billion of net outflows, respectively.

In the ordinary course of our business, we may reduce or waive investment management fees, or limit total expenses, on certain products or services for particular time periods to manage fund expenses, or for other reasons, and to help retain or increase AUM. If our revenues decline without a commensurate reduction in our expenses, our net income will be reduced. From time to time, we may experience poor investment performance, on a relative or absolute basis, in certain products or accounts that we manage, which may contribute to a significant reduction in our AUM and revenues.  There is typically a lag before improvements in investment performance produce a positive effect on asset flows. The implementation of new fiduciary standards could also reduce asset flows in the event of underperformance. There can be no assurances as to when, or if, investment performance issues will cease to negatively influence our AUM and revenues.

Changes In The Distribution Channels In Which We Operate Could Reduce Our Net Revenues and Adversely Affect Our AUM, Revenues and Growth Prospects.  Our ability to market and distribute mutual fundsthe Funds and other

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client bases will continue to be accessible to us.  The loss or diminution of the level of business we do with those providers could have a material adverse effect on our business.  Compared to the industry average redemption rate of 24.9%28.8% and 22.9%21.7% for each of the years ended December 31, 20182020 and 2017,2019, respectively, the unaffiliated channel had redemption rates of 38.7%37.9% and 40.1%38.1% for the years ended December 31, 20182020 and 2017,2019, respectively.  Redemption rates were 13.9%13.4% and 15.6%13.8% for our broker-dealerwealth management channel in the same periods, reflecting the higher rate of transferability of investment assets in the unaffiliated channel.  However, the modernization of our brokerage and advisorywealth management platforms and products and the introduction of additional unaffiliated investment products in our advisory programs, as well as changes resulting from possiblethe implementation of new best interest and fiduciary standards, may result in a higher redemption rate in our broker-dealerwealth management channel, as Advisors may move to sell more unaffiliated products.  An increase in the sale of unaffiliated mutual funds compared to sales of the Funds in our broker-dealerwealth management channel may reduce profits, as sales of unaffiliated mutual funds are less profitable than sales of our Funds.  See “Legal, Regulatory and Tax Risks.”

Fee Pressures Could Reduce Our Revenues And Profitability. There is an accelerating trend toward lower fees in some segments of the investment management business. The SEC has adopted rules that are designed to alter mutual fund corporate governance, which could result in further downward pressure on investment advisory fees in the mutual fund industry. Investors and clients are increasingly fee sensitive. Active management continues to experience pressure by increased flows to lower fee passive products.  This trend has resulted in pressure on active management firms to reduce fees to compete with passive products.  New best interest and fiduciary standards could increase fee pressure as financial advisors may have more fee sensitivity given their new fiduciary role.higher standard of conduct.  In addition, competition could cause us to reduce the fees we charge for products and services.  In the event that competitors charge lower fees for substantially similar products, we may be forced to compete on the basis of price in order to attract and retain clients.  Effective July 31, 2018,In the ordinary course of our business, we implemented fee reductions in selected mutual funds.may reduce or waive investment management fees, or limit total expenses, on certain products or services for particular time periods to manage fund expenses, or for other reasons, and to help retain or increase AUM. The investment management agreements with the Funds continue in effect from year to year only if approved by the Funds’ board of trustees. Periodic review of these advisory agreements could result in a reduction in investment management fee revenues received from the Funds. Accordingly, there can be no assurance that we will be able to maintain our current fee structure.  Fee reductions on existing or future new business could reduce our operating revenues and may adversely affect our business, future revenue and profitability.

The fees we earn vary depending on the type of asset managed, the type of client, the type of asset management product or service provided and whether the product is sub-advised.  A shift in the mix of our AUM from higher revenue-generating assets to lower revenue-generating assets may result in a decrease in our operating revenues even if our aggregate AUM do not change.  There can be no assurance that we will achieve a more favorable product mix in the future.  

Our Ability To Attract And Retain Key Personnel And Advisors Is Significant To Our Success And Growth.Success. Our success is largely dependent on our ability to attract and retain highly skilled personnel, including our corporate officers, portfolio managers, investment analysts, and sales and client relationship personnel, many of whom have specialized expertise and extensive experience in our industry.  The market for experienced asset management personnel is extremely competitive, and is increasingly characterized by the movement of employees among different firms.competitive.  Most of our employees do not have employment contracts,agreements, and generally can terminate their employment with us at any time.  Those employees who are subject to employment contractsagreements are generally eligible to terminate their employment at any time upon written notice. Due to the competitive market for these professionals and the success of our highly skilled employees, our costs to attract and retain key personnel are significant.  If we are unable to offer competitive compensation or otherwise attract and retain talented individuals, the Company’s ability to execute its strategic objectives, compete effectively and retain its existing clients may be materially impacted.  Because the investment track record of many of our products and services is often attributed to a small number of individual employees, the departure of one or more of these employees could damage our reputation and result in the loss of assets or client accounts, which could have a material adverse effect on our results of operations and financial condition.  If we are unable to attract and retain qualified personnel, it could damage our reputation, make it more difficult to retain and attract new employees, cause our retention costs to increase significantly, and materially adversely impact our financial condition and results of operations.    

Additionally, a significant portion of the sales of our mutual funds, investment products, annuities and insurance products are sold in our broker-dealerwealth management channel. Our growth prospects aresuccess is directly affected by the quality, quantity and productivity of Advisors who continue to manage their independent practices through their association with us.

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impact our ability to effect transactions, service our clients, manage our exposure to risk, or otherwise achieve desired outcomes.  Failure to keep current and accurate books and records can render us subject to disciplinary action by governmental and self-regulatory authorities, as well as to claims by our clients. In connection with the modernization of our brokerage and advisorywealth management platforms and products, a significant portion of our software is licensed from and supported by third party vendors upon whom we rely to prevent operating system failure.  A suspension or termination of these licenses or the related support, upgrades and maintenance could cause system delays or interruption.  If any of our financial, portfolio accounting, brokerage or other data processing systems, or the systems of third parties on whom we rely, do not operate properly or are disabled, or if there are other shortcomings or failures in our internal processes, people or systems, or those of third parties on whom we rely, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory problems or damage to our reputation.

Interruptions could be caused by operational failures arising from service provider, employee or Advisor error or malfeasance, interference by third parties, including hackers, our implementation of new technology, as well as from our maintenance of existing technology. Our financial, accounting, brokerage, data processing or other operating systems and facilities may fail to operate or report data properly, experience connectivity disruptions or otherwise become disabled as a result of events that are wholly or partially beyond our control, adversely affecting our ability to process transactions or provide products and services to our clients. These interruptions can include fires, floods, earthquakes and other natural disasters, power losses, equipment failures, attacks by third parties, failures of internal or vendor personnel, software, equipment or systems and other events beyond our control. Although we have developed and maintain a comprehensive business continuity plan, and require our key technology vendors and service providers to do the same, there are inherent limitations in such plans and they might not, despite testing and monitoring, operate as designed. Further, we cannot control the execution of any business continuity plans implemented by our service providers.

Failure To Implement New Information Technology Systems Successfully Could Materially And Adversely Affect Our Business.  We are in the process of continuing to modernize our brokerage and advisorywealth management platforms and products and implementing new information technology systems, including a new business administration platform and integrated data repository that we believe will facilitate and improve our core businesses and our productivity, and position our broker-dealerwealth management channel for long-term competitiveness.  Additionally, new fiduciary standards could require significant changes to our business operations, including, but not limited to, our distribution methods, compensation models and product shelf.  We may be required to make significant capital expenditures to maintain competitive infrastructure. Our technology infrastructure is vital to the competitiveness of our business.  We depend on specialized technology to operate our business and a number of our key information technology systems were developed solely to handle our particular information technology infrastructure.  Our continued success depends on our ability to effectively integrate necessary technology systems across our organization, and to adopt new or adapt existing technologies to meet client, industry, and regulatory demands.  There can be no assurance that we will successfully implement new information technology systems, that our existing technology infrastructure can support new systems or changes to existing systems, that their implementation will be completed in a timely or cost effective manner, or that we will derive the expected benefits from these new systems.  Failure to implement or maintain adequate information technology infrastructure may cause us to lose investors, clients, Advisors and fail to maintain regulatory compliance, which could severely damage our reputation, impede our ability to support business growth, and materially and adversely affect our results of operations.

A Failure In Or Breach Of Our Operational Or Security Systems Or Our Technology Infrastructure, Or Those Of Third Parties, Or Failure To Maintain Adequate Business Continuity Plans, Could Result In A Material Adverse Effect On Our Business And Reputation.  We are highly dependent upon the use of various proprietary and third party software applications and other technology systems to operate our business.  As part of our normal operations, we process a large number of transactions on a daily basis and maintain and transmit confidential client and employee information, the safety and security of which is dependent upon the effectiveness of our information security policies, procedures, capabilities and employees to protect such systems and the data that reside on or are transmitted through them.  Although we take protective measures and endeavor to modify these protective measures as circumstances warrant, technology is subject to rapid change and the nature of the threats continue to evolve.  As a result, our operating and technology systems, software and networks may fail to operate properly or become disabled, or may be vulnerable to unauthorized access, inadvertent disclosure, loss or destruction of data (including confidential client information), computer viruses or other malicious code, cyber-attacks and other events that could materially damage our operations, have an adverse security impact, or cause the disclosure or modification of sensitive or confidential information.  Further, a cybersecurity intrusion could occur and persist for an extended period of time without detection, and any investigation of a cybersecurity intrusion

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delays or interruption.interruptions.  We also take precautions to password protect and/or encrypt our laptops and other mobile electronic hardware.  Ifhardware; however, if such hardware is stolen, misplaced or left unattended, it may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions byagainst us.  While we collaborate with clients, vendors and other third parties to develop secure transmission capabilities and otherwise protect against cyber-attacks, we cannot ensure that we or any third parties hashaves all appropriate controls in place to protect the confidentiality and integrity of such information. Further, while we have in place a disaster recovery plan to addressensure we can recover from and continue our business continuity andupon the occurrence of catastrophic and unpredictable events, there is no guarantee that this plan will be sufficient in responding to or ameliorating the effects of all disaster scenarios, and we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war, and third party failures.   In addition, we rely to varying degrees on outsidethird party vendors for disaster contingency support, and we cannot be assured that these vendors will always be able to perform in an adequate and timely manner.

The breach of our operational or information security systems or our technology infrastructure, or those of third parties, due to one or more of these events could cause interruptions, malfunctions or failures in our operations and/or the loss or inadvertent disclosure of confidential client information could result in substantial financial loss or costs, liability for stolen assets or information, breach of client contracts, client dissatisfaction and/or other reputational loss, regulatory actions, remediation costs to repair damage caused by the breach, additional security costs to mitigate against future incidents, costs to provide notice to and credit monitoring for affected clients, and litigation costs resulting from the incident.  Although we seek to assess regularly and improve our existing business continuitydisaster recovery plans, a major disaster, or one that affected certain important operating areas, or our inability to recover successfully should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.  These events, and those discussed above, could have a material adverse effect on our business and reputation.

We remain subject to various state and federal laws and regulations related to the privacy, integrity and security of nonpublic personal information we create, collect and maintain in the conduct of our business concerning individuals, including Fund trustees and shareholders, our directors and shareholders, our clients, Advisors’ clients and our employees and independent contractors.  For example, the State of California recently enacted the California Consumer Privacy Act of 2018 (“CCPA”), which was effective January 1, 2020 and, among other things, created detailed notice, opt-out/opt-in, access and erasure rights for consumers vis-à-vis businesses that collect their personal information, and provides a new private cause of action for data breaches.  The California Privacy Rights Act, which was approved by ballot in November 2020 and will be effective in January 2023, augments and expands the CCPA.  Other states have enacted or proposed, or in the future may enact, similar privacy and data security legislation.  Privacy and data security laws and regulations, particularly when enacted on a state by state basis rather than at the federal level, could impose significant limitations, require changes to our business, restrict our collection, use or storage of nonpublic personal information and subject us to legal liability or regulatory action, which may result in increased compliance expenses, fines or penalties, the termination of client contracts, costly mitigation activities and harm to our reputation.

Failure To Establish Adequate Controls And Risk Management Policies, The Circumvention Of Controls And Risk Management Policies, Or Fraud Could Have An Adverse Effect On Our Reputation And Financial Position.  We have established a comprehensive risk management process and continue to enhance various controls, procedures, policies and systems to monitor and manage risks; however, we cannot assure that such controls, procedures, policies and systems will successfully identify and manage internal and external risks to our business. We are subject to the risk that our employees, Advisors, contractors or other third parties may deliberately seek to circumvent established controls to commit fraud or act in ways that are inconsistent with our controls, policies and procedures. Persistent attempts to circumvent policies and controls, or repeated incidents involving fraud, conflicts of interestsinterest or transgressions of policies and controls, could have a materially adverse effect on our reputation and lead to costly regulatory inquiries, fines and/or sanctions.

Our Own Operational Failures Or Those Of Third Parties We Rely On, Including Failures Arising Out Of Human Error, Could Disrupt Our Business And Damage Our Reputation.Our business is highly dependent on our ability to process, on a daily basis, large numbers of transactions. These transactions generally must comply with client investment guidelines, as well as stringent legal and regulatory standards.  Despite our employees being highly trained and skilled, due to the large number of transactions we process, errors may occur. If we make mistakes in performing our services that cause financial harm to our clients, our clients may seek to recover their losses. The occurrence of mistakes, particularly significant ones, could have a material adverse effect on our reputation and business.

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RISKS RELATED TO OUR BUSINESS

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A Failure To Protect Our Reputation Could Adversely Affect Our Businesses.  Our reputation is one of our most important assets. Our ability to attract and retain clients, investors, employees and Advisors is highly dependent upon external perceptions of our Company. Damage to our reputation could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, compliance failures, any perceived or actual weakness in our financial strength or liquidity, technological, cybersecurity, or other security breaches (including attempted breaches) resulting in improper disclosure of client or employee personal information, unethical behavior, and the misconduct of employees, Advisors and counterparties. Negative perceptions or publicity regarding these matters, even if they are baseless or eventually satisfactorily addressed, could damage our reputation among existing and potential clients, investors, employees and Advisors. Reputations may take decades to re-build, and negative incidents can quickly erode trust and confidence,

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the Credit Facility and note purchase agreement could be affected by events beyond our control, and there can be no assurance that we will achieve operating results that will comply with such terms and conditions, a breach of which could result in a default under our credit facility and note purchase agreement.the Credit Facility. In the event of a default under the Credit Facility,

Table of Incorporation, our Board of Directors has the authority, without action by our stockholders, to fix certain terms and issue shares of our Preferred Stock, par value $1.00 per share. Actions of our Board of Directors pursuant to this authority may have the effect of delaying, deterring or preventing a change in control of the Company. Other provisions in our Restated Certificate of Incorporation and in our Amended and Restated Bylaws impose procedural and other requirements that could be deemed to have anti-takeover effects, including replacing incumbent directors. Our Board of Directors is divided into three classes, each of which is to serve for a staggered three-year term after the initial classification and election, and incumbent directors may not be removed without cause, all of which may make it more difficult for a third party to gain control of our Board of Directors. In addition, as a Delaware corporation, we are subject to section 203 of the Delaware General Corporation Law. With certain exceptions, section 203 imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our voting stock.Contents

ITEM 1B.   Unresolved Staff Comments

None.

ITEM 2.      Properties

Our existing home office lease agreements cover approximately 298,000 square feet located in Overland Park, Kansas and 38,000 square feet for our disaster recovery facility.  We also own three buildings on our home office campus: two 50,000 square foot buildings and a 52,000 square foot building.  In January 2020, we signed a fifteen-year lease, which commences during early 2022, relating to the opiniondevelopment of management,a new 260,000 square foot corporate headquarters in Kansas City, Missouri.  As a result, the office space owned and leased by the Company is adequatethree buildings we own are being marketed for existing home office operating needs.sale.  The impact that our proposed merger with Macquarie will have on our new corporate headquarters lease has not been determined.  In addition, we lease office space utilized by Advisors and field office support staff in various locations throughout the United States totaling approximately 518,00014,000 square feet. Starting in 2018, we are transitioning allThe transition of the remaining Advisors currently leasing space from W&R to personal branch offices.offices is nearly complete.

ITEM 3.      Legal Proceedings

The information set forth in response to Item 103 of Regulation S-K under “Legal Proceedings” is incorporated by reference from Part II, Item 8. “Financial Statements and Supplementary Data,” Note 17 – Contingencies, of this Annual Report on Form 10-K.

ITEM 4.      Mine Safety Disclosures

Not applicable.

PART II

ITEM 5.      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A common stock (“common stock”) is listed on the NYSE under the ticker symbol “WDR.”

According to the records of our transfer agent, we had 2,3412,034 holders of record of common stock as of February 8, 2019.5, 2021. We believe that a substantially larger number of beneficial stockholders hold such shares in depository or nominee form.

Dividends

The declaration of dividends is subject to the discretion of the Board of Directors. We intend, from time to time, to pay cash dividends on our common stock as our Board of Directors deems appropriate, after consideration of our

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based compensation programs. During the year ended December 31, 2018,2020, we repurchased 6,963,2697,995,730 shares in the open market and privately at an aggregate cost, including commissions, of $135.9$114.7 million, including 729,882554,062 shares repurchased from employees to cover their tax withholdings from the vesting of shares granted under our share‑basedshare-based compensation programs at a cost of $14.5$9.0 million. The purchase price paid by us for private repurchases of our common stock from related partiesemployees is the closing market price on the purchase date.vesting date (or the business date prior to the vesting date for shares granted beginning in March 2020).  The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares.

The following table sets forth certain information about the shares of common stock we repurchased during the fourth quarter of 2018:2020:

Total Return Performance

Comparison of Cumulative Total Return (1)

The above graph compares the cumulative total stockholder return on the Company’s common stock from December 31, 20132015 through December 31, 20182020 with the cumulative total return of the Standard & Poor’s 500 Stock Index and the SNL Asset Manager Index. The SNL Asset Manager Index is a composite of 4140 publicly traded asset management companies (including, among others, the companies in the peer group reviewed by the Compensation Committee for executive compensation purposes) prepared by S&P Global Market Intelligence. The graph assumes the investment of $100 in the Company’s common stock and in each of the two indices on December 31, 20132015 with all dividends being reinvested. The closing price of the Company’s common stock on December 31, 20132015 was $65.12$28.66 per share. The stock price performance on the graph is not necessarily indicative of future price performance.

ITEM 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the “Selected Financial Data” and our Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report.

Strategic InitiativesOverview

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

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

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

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In 2017,our wealth management channel, we announced an actionable plan around four strategic pillars.  These pillars include (1) strengthening ourhad 936 Advisors and 397 licensed advisor associates as of December 31, 2020, for a total of 1,333 licensed individuals associated with W&R who operate out of offices located throughout the United States and provide financial advice for retirement, education funding, estate planning and other financial needs for clients.  

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We manage assets in a variety of investment management resources, processes and results; (2) reinvigorating our product line and sales; (3) continuing the evolution of our broker-dealer to a self-sustaining, fully competitive and profitable entity; and (4) making investments in support of our evolving business model, while improving efficiency. The following includes highlights of our progress to-date.

To strengthen our investment management resources, processes and results, we are working to align investment management resources and our philosophy toward the strongest growth opportunities, key products and new initiatives, and to fortify the foundation of our active management heritage.  Over the course of 2018, we continued to investstyles in our people, technology resources, and risk management capabilities.  We continue to move towards team-based portfolio managementinstitutional channel. Most of the Funds,clients in this channel are other asset managers that hire us to act as a subadviser for their branded products; they are typically domestic and have fortified our research team with additionalforeign distributors of investment analysts, while continuingproducts who lack scale or the track record to foster a collaborative culture across our investment management professionals. We are encouragedmanage internally, or choose to market multi-manager styles. Our diverse client list also includes pension funds, Taft Hartley plans and endowments.

Proposed Acquisition of Waddell & Reed Financial, Inc. by recent performance improvements, in fact, despite market volatility inMacquarie

On December 2, 2020, the fourth quarter of 2018, relative investment performance at year-end 2018 improved comparedCompany announced entry into the Merger Agreement.  Subject to the prior year across muchterms and conditions of our complex.

To reinvigorate our product linethe Merger Agreement, Merger Sub will be merged with and sales, we continue to manageinto the product line dynamically to respondCompany, with the Company surviving the merger as a wholly owned subsidiary of Macquarie.  Pursuant to the competitive environmentMerger Agreement, at the effective time of the merger, each share of the Company’s Class A common stock issued and opportunities for growth, and are directing sales activitiesoutstanding immediately prior to the best opportunities across product, channel, distributoreffective time will be converted into the right to receive $25.00 per share in cash, without interest and advisor. In 2018, we completedsubject to any withholding of taxes required by applicable law in accordance with the Merger Agreement.  On completion of the merger, of the remaining Advisors Funds into Ivy Funds, resulting in operational efficiency and added fund-level scale. We also announced and completed theMacquarie intends to sell our wealth management business to LPL Holdings, Inc.

The proposed merger of six Ivy Funds and one Ivy VIP fund into other Ivy Funds, and one Ivy VIP fund, respectively, with generally similar investment objectives, creating more economies of scale for the benefit of fund shareholders.  Finally, we implemented fee reductions in selected mutual funds, effective July 31, 2018, as we continueis expected to focus on strategies where we feel we are best positioned to compete.  Although there are many factors at play, net outflows have slowed 9% year-over-year on a reported basis and 24% excluding the outsized impact of Institutional flows due to personnel changes.

To continue the evolution of our broker-dealer to a self-sustaining, fully competitive and profitable entity, we are improving competitiveness by evolving the platform and product offerings and moving to an industry standard compensation and services model. During 2018, we further realigned our field resources and announced plans to exit leased field real-estate, while enhancing our Advisor payout grid to what we believe is best-in-class.  We continue to direct efforts around a field services model focused on delivering robust practice development, while expanding recruiting efforts and creating a diamond service group for top Advisors. We also continue to enhance the technology platform and launched plans for an advisor technology platform that integrates all of our enterprise technology applications and provides a desktop solution where Advisors can manage all aspects of their business, allowing Advisors to work efficiently and seamlessly.

To focus investment in support of our evolving business model, while improving efficiency, we are advancing our culture by further investing in our people through talent management, while ensuring our resources are aligned in the most productive and effective manner as we build a framework for long-term success. Additionally, we introduced an enterprise project management organization (PMO) and related project processes and governance, and are driving targeted allocation and efficient utilization of corporate resources. We continue to focus on long-term controllable expenses, which includes compensation, general and administrative, technology, occupancy and marketing and advertising costs.  We’ve made considerable progress on this front, achieving our previously stated goal of adding $30 million, on a run-rate basis, to pre-tax incomeclose by the end of 2018,April 2021, subject to regulatory approvals, Waddell & Reed Financial, Inc. stockholder approval and having reducedother customary closing conditions.

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Please see the Risks Related to the Proposed Merger included in Item 1A—“Risk Factors” in this Annual Report for a discussion of certain risks related to our proposed merger with Macquarie.  Please see the Company’s definitive proxy statement filed with the SEC on February 17, 2021, for additional information on the merger.

Impact of COVID-19

The market volatility that began in March 2020, as a result of the reaction to COVID-19 and its impact on the global economy, resulted in significant depreciation in the stock markets.  In the second through fourth quarters of 2020, the markets rebounded, benefiting our measures of AUM and AUA and the revenues that are based on these assets for these periods.

Some of our expenses, particularly certain distribution expenses, are directly correlated with revenue, and we saw increases in these expenses in line with the revenue increases during the second through fourth quarters of 2020.  At the same time, controllable expenses, nearly 8% since 2015, while making targeted investmentsdefined as Compensation and benefits, General and administrative, Technology, Occupancy and Marketing and advertising, increased approximately 5% year-over-year.  While the Company took several incremental actions to reduce these expenses throughout 2020, we took a long-term view and invested in growth areas.the areas we

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thought would allow us to come out of the pandemic in a stronger position to drive growth.

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

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For additional discussion regarding the risks that can impact our business, results of operations and financial condition due to COVID-19 and the related economic conditions, please see Part I – Item 1A – “Risk Factors”.

Highlights

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Operating Results⁽¹⁾

We earned $1.2$1.0 billion in revenues in 2018,2020, which was relatively unchanged asdecreased 2% compared to 2017.2019.  Average AUM were $78.3$66.7 billion in 20182020 compared to $81.0$70.3 billion in 2017. 2019. AUA increased 16% in 2020 to $69.7 billion, compared to $60.1 billion in 2019.  The increase in AUA was related to increases in Advisory AUA, due to market appreciation and positive net new Advisory AUA.  The fourth quarter of 2020 was the 8^th consecutive quarter for positive net new Advisory AUA.

Net income attributable to Waddell & Reed Financial, Inc. increased 30%of $70.5 million decreased 39% compared to 2017, while$115.0 million in 2019.  Net income per diluted share was $1.08 for 2020 compared to $1.57 for 2019.  The year ended December 31, 2020 included $39.6 million in costs related to our proposed merger with Macquarie.  Excluding the merger-related costs, adjusted net income for 2020 was $102.8 million and adjusted net income per diluted share was $1.58.  The year ended December 31, 2019 included non-cash asset impairment charges of $12.8 million in connection with certain assets held for sale, including real property related to our corporate headquarters move planned for 2022 and the elimination of our internal aviation operations, an $11.2 million non-cash charge related to the annual revaluation of the pension plan liability and $5.4 million in severance expense related to the outsourcing of our transfer agency transactional processing operations.  Excluding these non-cash and severance expense charges, adjusted net income for 2019 was $137.4 million and adjusted net income per diluted share was $1.87.

Operating expenses of $954.7 million in 2020 increased $30.1 million compared to the prior year. Excluding merger-related costs, non-cash asset impairment charges and severance described above, adjusted operating expenses increased $8.7 million, or 1%, compared to adjusted 2019 operating expenses. The operating margin for 2020 was 9.0% and the adjusted operating margin was relatively unchanged from 2017.12.8%, compared to the reported and adjusted operating margin of 13.6% and 15.3% for 2019, respectively.  

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