Waddell & Reed Financial, Inc. Investor Presentation

Transcription

1 Waddell & Reed Financial, Inc. Investor Presentation Waddell & Reed Financial, Inc.

2 NYSE: WDR IPO March 1998 Shares outstanding 84.9 million Market capitalization of $1.3 billion Annual dividend per share $0.76 Yield 4.9% Unless otherwise noted, all data in this presentation is as of December 31,

3 For more than 70 years, we have provided proven, professional investment management and financial planning services for individuals and institutional investors Distinct distribution channels serving Retail, Wholesale and Institutional market segments Dedicated network of highly skilled financial advisors Comprehensive, diversified family of managed mutual funds 3

4 Waddell & Reed Financial, Inc. Advisors Channel Financial Planning and Product Focus Financial advisors pr ov iding financial planning, principally for middle income and mass affluent markets Wholesale Channel Retail Product Focus Third Party Broker/Dealer Retirem ent RIA Strategic Partnership Legend Adv isors Institutional Channel Defined benefit, pensions/endowments Subadvisory Pictet & Cie Mackenzie High net worth 4

5 Investment Management Philosophy is consistent we seek consistently competitive long-term performance with emphasis on risk control Supports financial planning model and emerging investor preference for moderated risk Process is unwavering Fundamental analysis, bottom-up securities selection Bias towards concentration sectors and stocks Resources are substantial 29 Portfolio Managers average tenure: 19 industry/13 W&R 30 Analysts and assistant PMs average tenure: 11 industry/4 W&R 4 Economists average tenure: 13 industry/9 W&R 6 Traders average tenure: 19 industry/21 W&R Top notch performance Collegial meritocracy resulting in consistent, persistent investment process that yield excellent long-term performance results. 5

6 Strong Investment Management Performance Lipper Ranking as measured by assets under m anagement Equity Assets 1 Year 3 Years 5 Years Top Quartile 3 3% 7 4 % 7 8% Top Half 7 9% 89% 91 % Fixed Incom e Assets Top Quartile 5 8% 6 4% 32 % Top Half 83% 83% 94 % All Assets Top Quartile 3 6% 7 2 % 7 2% Top Half 7 9 % 88% 92 % Barron's The Best Mutual Funds of 2008 ranked Waddell & Reed Advisors Fu nds #5 and the Ivy Fu nds #9 out of 59 fund fam ilies 6

7 Assets Under Management Equity Fixed Income Money Market Total Advisors $17,172 $4,555 $1,745 $23,472 50% Wholesale 16, ,489 37% Institutional 5, ,523 13% Total $39,686 $5,736 $2,062 $47,484 84% 12% 4% $ in millions 7

8 Retail Distribution Advisors and Wholesale Channels 8

9 We Have A Lot of Excellent Product to Offer 1 Year 3 Year 5 Year 1st Quartile Ivy Balanced 44% Ivy Asset Strategy 46% Ivy Asset Strategy 50% I vy Cundill Global Value Ivy Balanced Ivy Balanced I vy High Income Ivy Core Equity Ivy Core Equity I vy International Core Equity Ivy High Income Ivy Div idend Opportunities I vy Limited-Term Bond Ivy International Balanced Ivy High Income I vy Mid Cap Growth Ivy International Core Equity Ivy International Balanced I vy Real Estate Securities Ivy International Growth Ivy Internatio nal Core Eq uity Ivy Science & T echnology Ivy Large Cap Growth Ivy International Growth Ivy Small Cap Growth Ivy Limited-Term Bond Ivy Large Cap Growth I vy Small Cap Value Ivy Science & T echnology Ivy Limited-Term Bond I vy Value Ivy Small Cap Value Ivy Mid Cap Growth 2nd Quartile I vy Asset Strategy 20% Ivy Cundill Global Value 33% Ivy Science & Technology I vy Core Equity Ivy Div idend Opportunities Ivy Capital Appreciation 38% I vy International Growth Ivy Mid Cap Growth Ivy Cundill Global Value I vy Large Cap Growth Ivy Municipal Bond Ivy European Oppo rtunities Ivy Municipal Bond Ivy Pacific Opportunities Ivy Municipal Bond 3rd Quartile Ivy Bond 24% Ivy Real Estate Sec urities Ivy Pac ific Op port unit ies I vy Dividend Opportunities Ivy Small Cap Growth Ivy Real Estate Securities Ivy Energy Ivy Value Ivy Small Cap Growth I vy European Opport unities Ivy Bond 13 % Ivy Small Cap Value I vy International Balanced Ivy Capital Appreciation Ivy Value I vy Pacific Opportunities Ivy European Opportunities Ivy Bond 4% 4th Quartile I vy Capital Appreciation 12% Ivy Global Natural Resources 8% Ivy Global Natural Resources 8% I vy Glob al Natural Resources Ivy Mortgage Securities Ivy Mo rtgage Securities I vy Mortgage Securities Ivy Funds Lipper ranking at 12/31/08 9

10 Fund Families Mutual Funds Waddell & Reed Advisors Funds Ivy Funds Variable Annuities Ivy Funds VIP 529 Plan InvestED Portfolios 10

11 Retail Distribution We serve two distinct distribution channels The Advisors channel offering a combination of financial planning and retail products The Wholesale channel offering a comprehensive selection of topperforming funds 11

12 Channel Analysis Side by Side Comparison Point of Sale Advisors Lower cost to acquire assets U&D near breakeven Wholesale Higher cost to acquire assets 1½ to 2 years breakeven Management Fees Assets retained years Re demption rate 8.9% Assets retained for 5+ years* Re demption rate 35.5% Asset Growth Moderate Robust Distribution Point s 2,366 financial advisors Num erous brokers * The redemption rat e in the Wholesal e channel has been advers ely af fect ed by the recent market t urmoil. It is notable that this mar ket environment has had little adverse i mpact on your advisors redemption rate 43,000 advisors selling Ivy funds 12

13 Advisors Channel Through a dedicated sales force, our Advisors channel serves individual investor s needs for high-quality advice, personal financial planning and investment strategies to meet long-term financial goals. 13

14 Advisors Channel Advice driven Financial planning focus Supported by a comprehensive product array Financial plans Mutual funds W&R core Subadvisors niche Variable annuity products Insurance Fee-based platforms Our unique approach yields an industry-low redemption rate and a low cost to acquire assets. Combined, these factors result in a business model with superior profitability characteristics. 14

15 Advisors Channel - Gross Sales & Net Flows $4,000 CAGR: 13.8% $3,000 $2,000 $1,000 $0 -$1,00 0 -$2,00 0 More importantly outflows trend reversed Sales Net Flo ws $ in millions 15

16 Advisors Channel - Gross Sales & Net Flows $1,200 $1,000 $800 $600 $400 $200 $0 -$200 -$400 Second half of 2008 proved challenging 1Q Q Q Q 2008 Sales Net Flows $ in millions 16

17 Meaningful Improvement in Advisor Productivity Sales Productivity $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $70 $60 $50 $40 $30 $20 $10 Gross Production $ $0 17

18 Advisor Productivity Second Half Challenging $600 $18 $500 $17 Sales Productivity $400 $300 $200 $16 $15 Gross Production $100 $14 $0 1Q Q Q Q 2008 $13 18

19 Platform Choices Classic Platform Transfer agency system direct to mutual fund (check & application) Upgraded technology, including ability to provide consolidated statements Choice Platform Full-service, open-architecture brokerage platform One-stop-shop for all clients needs Robust suite of products Choice gives Waddell Competitive platform to compete in full-service brokerage world Ability to recruit experienced advisors with existing (larger) books of business 19

20 Wholesale Channel The Wholesale channel brings our solid investment expertise to market through the Ivy Funds, allowing us to accelerate our asset growth. 20

21 Wholesale Channel Comprehensive multi-manager product line Focus on building traction through targeted wholesaling efforts 39 external wholesalers; 37 internal wholesalers Distribution through: Broker/dealer Strategic partners Retirement & RIA 21

22 Wholesale Channel - Gross Sales & Net Flows $18,000 $16,000 $14,000 $12,000 CAGR: 83.5% $10,000 $8,000 $6,000 $4,000 $2,000 $ Sales Net Flo ws $ in millions 22

23 Wholesale - Gross Sales & Net Flows $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,00 0 -$2,00 0 -$3,00 0 1Q Q Q Q 2008 Sales Net Flow s $ in millions 23

24 Well Embedded at Key Distributors Rank as of 12/12/08 Rank Firm 5 Merrill Lynch 4 Smith Barney 9 UBS 3 Wachovia Securities 5 Morgan Stanldy 5 Raymond James 8 LPL 6 A.G. Edwards 10 RBC Capital Markets 5 Commonweath Financial 24

25 Sales by Dealer Classification Wirehouse $8,164 54% $5,116 54% $2,323 51% $922 40% $325 26% Independent 2,763 18% 1,822 19% % % % Platform 2,132 14% 1,300 14% % % % Regional 1,259 8% 664 7% 331 7% % % In surance 560 4% 397 4% 380 8% % % Bank 231 2% 151 2% 63 1% 22 1% 12 1% Total $1 5,1 09 $9,450 $4,5 44 $2,282 $1,233 $ in millions 25

26 Institutional Channel Through the Institutional channel, we manage the investments of defined benefit plans, pensions, endowments and high net worth individuals. We also serve as subadvisor for other investment management companies. 26

27 Institutional Channel Market segment emphasis Mutual funds subadvisory Corporate and pubic pension plan sponsors Foundations and endowments Most actively marketed product Large capitalization growth Phil Sanders Tenure: 20 industry/10 W&R Dan Becker Tenure: 20 industry/19 W&R Core Equity Erik Becker Tenure: 10 industry/9 W&R Gus Zinn Tenure: 10 industry/10 W&R 27

28 Institutional Channel - Gross Sales & Net Flows $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 -$500 -$1,00 0 -$1,50 0 -$2,00 0 CAGR: 16.6% Sales Net Flo ws $ in millions 28

29 Institutional - Gross Sales & Net Flows $800 $7 00 $600 $500 $400 $300 $200 $100 $0 1Q Q Q Q 2008 Sales Net Flo ws $ in millions 29

30 Waddell & Reed Financial, Inc. Enhancing Stockholder Value 30

31 Enhancing Shareholder Value Use of Cash Free cash flow from operations $ million Dividend payments of $65 million Capital expenditures $15-17 million Shares repurchased million for a total of $20-30 million Stock yield 1 6.9% Projected for the fiscal year ended December 31, Yield = (Dividends paid + share buyback)/market capitalization 31

32 Preserving Profitability Return to 20% operating margin during 2009 Major underlying assumptions Flat market Sales Advisors channel: $13-$15 million per day, redemption rate 10% Wholesale channel: $37-$43 million per day, redemption rate 25% Institutional channel: $4 million per day, redemption rate 15% 32

33 Forward Looking Statements From time-to-time, information or statements provided by or on behalf of the Company, including those within this Presentation may contain certain "forward-looking statements," including information relating to anticipated growth in our revenues or earnings, anticipated changes in the amount and composition of assets under management, our anticipated expense levels, and our expectations regarding financial markets and other conditions. Readers are cautioned that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise. Although we believe that the assumptions and expectations reflected in such forward looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct or that we will take any actions that may presently be planned. Certain important factors that could cause actual results to differ materially from our expectations are also disclosed in our periodic filings with the Securities and Exchange Commission. All subsequent written or oral forward-looking statements attributable to us or person s acting on our behalf are expressly qualified in their entirety by such factors. Our future revenues will fluctuate due to many factors, such as the total value and composition of assets under our management and related cash inflows or outflows in the Advisors, Ivy and W&R Target mutual funds, InvestEd (collectively the "Funds") and other investment portfolios; fluctuations in national and worldwide financial markets resulting in appreciation or depreciation of assets under our management; the relative investment performance of the Funds and other investment portfolios as compared to competing offerings; the risk that the expected benefits from the expansion of our distribution channels may not be as beneficial as expected, the expense ratios of the Funds; acts of terrorism and/or war; investor sentiment and investor confidence; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; our introduction of new mutual funds, investment portfolios and new financial products; our ability to contract with the Funds for payment for investment advisory-related administrative services provided to the Funds and their shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; potential misuse of client funds and information in the possession of our financial advisors; and the risk that the restructuring of our mutual fund products and development of additional distribution channels may not be successful. Our revenues are substantially dependent on fees earned under contracts with the Funds and could be adversely affected if the independent directors of one or more of the Funds determined to terminate or significantly alter the terms of the investment management or related administrative services agreements. Our future operating results are also dependent upon the level of our operating expenses, which are subject to fluctuation for the following or other reason s: variations in the level of compensation expense due to, among other things, performance-based bonuses, changes in our employee count and mix, and competitive factors; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; less favorable economic and market conditions, including our cost to finance the Company and disruptions of services, including those provided by third parties such as communications, power, and the mutual fund transfer agent system. In addition, our future operating results may also be impacted by our ability to incur additional debt, regulatory enforcement actions, adverse litigation and/or arbitration. The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements or their interpretations may have a substantial effect on our operations and results, including but not limited to effects on costs we incur and effects on investor interest in mutual funds and investing in general or in particular classes of mutual funds or other investments. 33