Waddell & Reed Review 2022 - MagnifyMoney
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Waddell & Reed Review 2022

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Waddell & Reed is a large registered investment advisory firm as well as a broker-dealer. This dual designation means advisors can continuously manage client portfolios for a fee, or clients can pay their advisor each time they buy or sell an investment product. Headquartered near Kansas City, Kan., Waddell & Reed has over 350 offices across the United States, with 1,700 employees in total, all of whom serve in investment advisory and research roles. Most of these advisors can also sell insurance products.

The bottom line: Waddell & Reed is a nationally registered firm that primarily serves individuals, including those who are high net worth, though clients note potentially high fees and conflicts of interest.

  • Large national network of advisors
  • Flexibility for clients around how their money is managed
  • Advisors can earn money from certain investment products

All information included in this profile is accurate as of September 14, 2021. For more information, please consult Waddell & Reed’s website.

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Overview of Waddell & Reed

Waddell & Reed’s roots date to 1937, when two World War I veterans, Chauncey Waddell and Cameron Reed, founded the firm.

Prior to 2021, Waddell & Reed was a subsidiary of Waddell & Reed Financial, Inc., a standalone public company that also provided other services such as investment advisory and mutual funds offerings, including the affiliated Ivy Funds and Ivy InvestEd Portfolios. In April of 2021, there was a change of ownership: Waddell & Reed’s wealth management division was purchased by the public company LPL Financial, which is part of LPL Financial Holdings Inc. and also partners with a number of other financial institutions.

Today, Waddell & Reed’s team of 1,700 employees who perform research and advisory work are located nationwide. In total, the firm is responsible for managing over $33 billion in assets.

Waddell & Reed’s pros

  • Accessible to middle-income clients: Unlike many investment advisory firms, clients do not need deep pockets to access Waddell & Reed. Account minimums start as low as $5,000, giving middle-income investors in need of retirement or education planning a place to turn. Note that other programs may require higher minimums though.
  • Nationwide network: The firm’s more than 350 offices means it has vast geographic reach, making it more likely there is an advisor near you. In fact, Waddell & Reed is registered to serve investors in all 50 states, plus the District of Columbia.
  • Broad menu: The firm offers a mix of program offerings, allowing clients to choose what types of investments they’re interested in, as well as how much they want to be involved in the management of their account. Clients aren’t forced into a one-size-fits-all approach.

Waddell & Reed’s cons

  • Potential conflicts of interest: Waddell & Reed is compensated for recommending specific investments, such as insurance, which may steer advisors toward recommending the products that generate the most income. In particular, the firm earns more revenue when advisors recommend affiliated mutual funds.
  • Potentially high fees: The maximum fee advisors at Waddell & Reed are allowed to charge can run well over 2%, which falls at the high end of the fee spectrum. For comparison, the industry standard fee typically ranges from 0.50% to 1.25% of assets under management.
  • Comparison shopping isn’t easy: Each advisor at Waddell & Reed negotiates their own fees, within limits, since the firm has no standard fee schedule. Thus, clients won’t learn how much they’ll pay without speaking to each advisor.
  • Not all advisors can offer all programs: Advisors without specific designations, for example, cannot offer all of the programs available at the firm. Be sure to inquire what programs are available to an advisor’s clients. Additionally, certain programs can be limiting, such as the Strategic Portfolio Allocation, which offers access only to affiliated mutual funds.

What types of clients does Waddell & Reed serve?

Most of the firm’s assets under management come from individual investors. The largest cohort of Waddell & Reed’s clients are individuals who are not high net worth, though the firm does serve a smaller group of high net worth individuals, defined by the SEC as individual investors with more than $750,000 to invest or a net worth of at least $1.5 million.

The minimum investment required to work with the firm ranges from as little as $5,000 to about $25,000, depending on the program. This makes the firm accessible to a wide range of investors.

Services offered by Waddell & Reed

Waddell & Reed offers investment management and financial planning to its individual clients. In particular, the firm says it focuses on planning. Advisors can assist clients in navigating myriad financial and life issues involving topics such as retirement, estates, taxes, businesses, education and disability and long-term care insurance. Financial planning clients receive a formal financial plan with specific recommendations.

Separately, all advisors at Waddell & Reed are licensed as broker-dealers. Thus, in addition to offering clients ongoing account management, advisors can also recommend specific stocks or other products and earn fees per transaction. Most of the firm’s advisors can also sell insurance.

Here is a full list of services offered by Waddell & Reed:

  • Portfolio management
    • Programs with environmental, social and governance (ESG) strategies
  • Financial planning
    • Retirement planning
    • Education funding
    • Goal funding
    • Survivor income needs
    • Disability income
    • Long-term care
    • Estate planning
    • Asset allocation
    • Business planning
    • Income tax planning
  • Pension consulting services
  • Selection of other advisors
  • Educational workshops and seminars
  • Broker-dealer services
  • Insurance

How Waddell & Reed invests your money

Waddell & Reed clients can choose from a long menu of investment programs. To start, clients can decide how involved they want to be in the day-to-day management of their account. They can opt to give advisors discretionary control over their accounts, meaning they do not have to approve each individual trade, or they can retain that power. Most clients work with the firm through non-discretionary relationships.

The list of programs available to clients ranges from accounts that invest only in affiliated mutual funds, to accounts invested in strategies overseen by outside managers. Alternatively, clients can have their specific financial advisor manage their account.

In general, the type of investments that may be recommended for use in clients’ portfolios include:

Clients interested primarily in mutual funds and ETFs can opt for asset allocation model portfolios, which are created for varying levels of risk. Some accounts may be limited to affiliated mutual funds only. Other programs give clients access to individual stocks and bonds. The firm also offers programs that screen investments and assess a company’s impact on certain environmental, social and governance issues. Thus, clients interested in investing in companies with values that align with their own can discuss with their advisor which programs are best suited to incorporate those values into their investing.

Clients also have the option of bundling their advisory fee with trading costs, known as a wrap account, or separating those charges. They also can influence how frequently their account is rebalanced.

Fees Waddell & Reed charges for its services

Fees for investment management: Clients of Waddell & Reed who opt for continuous management of their investment accounts typically pay a fee calculated as a percentage of assets under management. The rate is negotiated between the advisor and the client, and will vary based on factors such as the client’s goals, the complexity of their situation and how much money they are investing. Thus, clients may pay different fees for the same services from different advisors.

Fees also vary by program. The firm does institute a maximum fee, however, which includes the advisor fee plus the sponsor’s charges. Maximum rates range from 1% to 2.80%, depending on the program and the amount invested. The sponsor’s charge is nonnegotiable.

Keep in mind that on top of advisory fees, clients may still be on the hook for additional investment-related costs, such as underlying fund fees, trading fees or other brokerage costs.

Fees for financial planning: Similar to investing, charges for financial planning vary by advisor and are negotiated directly with each advisor. Factors influencing how much you’ll pay include the complexity of your needs and goals as well as the experience of your advisor.

The maximum fees allowed for financial planning are generally as follows, though there may be exceptions:

  • $2,500 for a basic plan
  • $5,000 for an intermediate plan
  • $10,000 for advanced help

Sometimes an advisor may include planning at no additional cost.

Waddell & Reed disciplinary disclosures

Waddell & Reed discloses regulatory disciplinary actions in the prior decade. The firm has no civil or criminal disclosures. Its regulatory actions listed in its Form ADV filed with the SEC that occurred within the last 10 years include the following:

  • In 2016, the firm consented, without admitting or denying wrongdoing, to allegations from the New Hampshire Bureau of Securities Regulation that a specific investment advisor violated regulations, including verbally misrepresenting financial planning charges, and that the firm did not properly oversee this individual. Thus, Waddell & Reed was censured and paid a fine of $300,000, contributed $300,000 to an investor education fund and returned more than $2 million in financial planning fees to clients of this specific advisor.
  • In 2013, the firm settled charges from the Financial Industry Regulatory Authority (FINRA), without admitting to or denying wrongdoing, that alleged certain clients did not receive certain purchase confirmations for mutual fund asset allocation product accounts. The firm noted in its disclosures that the issue was the result of a coding change by a third-party service provider. The firm was censured and paid a $75,000 fine.

For reference, the SEC requires all registered investment advisory firms to disclose to the public all criminal, civil and regulatory actions against the firm, its employees and its affiliates in the prior decade that a client would find material when evaluating the firm and the integrity of its leaders. To learn more about Waddell & Reed’s disclosures, visit its IAPD page.

Waddell & Reed onboarding process

Interested clients can reach out to Waddell & Reed in the following ways:

  • Use the firm’s advisor search tool to locate a nearby advisor. (Note: Since the firm was bought by LPL Financial, the Waddell & Reed search tool now redirects you to the LPL Financial advisor search tool.)
  • Call the firm at 1-866-937-0010

If you decide to move forward with one of the firm’s advisors, you can generally expect to go through the following process:

  • Advisors will use a technology that allows clients and advisors to construct and manage portfolio models.
  • After a consultation with your advisor, you can choose an appropriate investment program based on factors like your objectives, risk tolerance and time horizon.
  • Advisors will aim to contact ongoing advisory clients at least annually to discuss their investments. These clients will also receive account statements at least quarterly.
  • The firm recommends financial planning clients reach out to their advisor at least annually as well.

Where Waddell & Reed is located

Waddell & Reed is headquartered in Overland Park, Kan., with an additional 350 offices around the country. The firm’s Form ADV states specifically it has locations in these states, although this list is not necessarily exhaustive so search for a location near you even if your state is not included here:

  • California
  • Colorado
  • Connecticut
  • Illinois
  • Kansas
  • Massachusetts
  • Minnesota
  • Missouri
  • Nebraska
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Texas
  • Utah
  • Virginia
  • Washington

Is Waddell & Reed right for you?

Waddell & Reed serves individual investors, including some high net worth individuals, who are looking for help with retirement, education, taxes, insurance and other types of financial planning. Clients who want a choice of how their money is managed, as well as what types of products they’re invested in, may consider this firm. Given the firm’s large nationwide network, it’s likely you may find a local advisor in your area.

That said, clients who would rather not call multiple advisors to learn their fees may want to look for another firm that sets a standard fee schedule. Additionally, clients should note that advisors can earn money from investment firms for selling their products, which could pose potential conflicts of interest.

It’s important to find a financial advisor you’re comfortable working with, which requires doing your research and asking questions about everything from compensation to communication.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.