Waddell & Reed Financial’s net income plunged in the third quarter due to losses from the sale of its Legend group of subsidiaries to First Allied Holdings.

The Overland Park, Kan.-based firm reported earnings of $8.5 million, or 10 cents per diluted share, in the third quarter ended Sept. 30. This reflects a 391% decrease from $41.7 million, or 48 cents per diluted share, in the second quarter, and 368% decrease from $39.8 million, or 46 cents per diluted share, during the year-prior quarter.

Results of the Legend sale, which should close in January 2013, include a non-cash charge of $42.4 million from the write-down of Legend.

Though Legend "proved a steady source of flows for broker-dealers of its size," with assets of approximately $560 million in Waddell & Reed products, "managing a separate broker-dealer whose principal business, the 403(b) market, is changing rapidly has proven to be a challenge," said Hank Herrmann, Waddell & Reed chairman and chief executive officer, during a earnings conference call this morning.

Waddell & Reed did report income from continuing operations of $52 million — compared with $41.2 million in the second quarter and $39.4 million in the year-prior quarter — thanks largely to a slight increase in revenue from investment management fees and lower general and administrative expenses. Assets under management rose 6% during the quarter thanks to positive market action and organic growth, ending the month of September at $95 billion.

Meanwhile, regarding outflows in equity and fixed-income, as well as "modest" sales on the advisor side, Herrmann said, "My sense is everything is in limbo until we get to the other side of the elections and into the New Year."

In terms of growing assets, Chief Marketing Officer Tom Butch said the firm plans to continue its efforts to grow the advisor business, which he said is "important and foundational to the business."

Waddell & Reed shares closed at $32.62 on Friday, Oct. 26. And while prices fluctuated somewhat with the market finally reopening again this morning, they still remained within the $32.20 to $33.06 range.

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