One of our largest clients in terms of assets paid us both asset-based and performance-based advisory fees in 2008. 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 2010 or 2009 and accounted for less than 1% of our revenues for the years ended December 31, 2010 and 2009. Our four largest clients accounted for approximately 12.2%12.6% of our fee revenues for the year ended December 31, 2010.2012. The loss of some or all of these large clients or failure to deliver the 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 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 on 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 and 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 throughvia 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 significantly 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 a key factor inwhen 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 our employees a compensation program that includes strong equity incentives such that their success will be closely tied toaligned with the success of our 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. In order to attract additional assets; however,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 identify 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 assets in our SMidCap Value product since we began marketing this asset class to institutions in 2004. As a result of this growth, the SMidCap Value asset class was closed to new investors in 2010. The WHG SMidCap mutual fund remains open to existing shareholders only. In July 2010 we launched the SMidCap Plus+ product, which is managed by the same team responsible for the SMidCap product. We believe SMidCap Plus+ will be an attractive investment alternative to clients looking to invest in small to mid size companies. We are also marketing other asset classes that we have developed in recent years. We began marketing SmallCap Value to institutions in 2007 and it has completed the approval process at many investment consulting firms, winning several institutional mandates. Our AllCap product has been receiving increased interest and has been awarded several institutional mandates in the last two years.us. Assets in our Income Opportunity productstrategy grew substantially in 2010 with2011 and 2012, exceeding $1.7 billion at the end of 2012, as the strategy continued to receive strong interest from our private wealth and mutual fund channels. In 2007, we launched an MLP portfolio in response to the needs of an existing client.channels as well as from additional institutional mandates. We believe that we have the team in place to support these productsinvestment strategies in our target institutional, 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-tosmall to medium-sized institutions andas well as high net worth individuals.individuals and families. We seeanticipate continued interest from clients and prospects in our diversified, highly attentive service 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 opportunities for future growth. Our recent2010 acquisition of McCarthy Group Advisors, LLC in Omaha, Nebraska, enablesenabled us to introduce Westwood Trust products and services to a new market which we believe offerswith attractive growth opportunities.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), which were launched from 2005 through 2007. In addition, the WHGWestwood Dividend Growth Fund (WHGDX) was launched in February 2011 subsequent to the reorganization of the McCarthy Multi-Cap Stock Fund. The WHG SMidCap Fund was closed to new investors in January 2011. Also in January 2011, we filed a registration statement for the WHG, Westwood SMidCap Plus+ Fund,(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 we expect to be available later in 2011. 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. In 2009 we reduced the expense cap for WHG Income Opportunity and WHG Balanced

Pursue strategic corporate development opportunities. We evaluate strategic corporate development opportunities carefully in order to increase their appeal to investors. We believe that access to our 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 expandingteams. We consider opportunities to enhance our existing operations, expand our range of asset classes orinvestment strategies and services 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 can increase opportunities to 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 participationsuccess in the investment industry and will be instrumental to our future success. We have developed our strong brand name largely through excellent performance coupled with high profile coverage in investment publications and electronic media. A numberSeveral of our investment professionals, including Susan Byrne,Mark Freeman, David Spika, Mark Freeman and Ragen Stienke, arePatricia Perez-Coutts and Thomas Pinto Basto have been visible 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 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 markets.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 our company.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 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 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,summary, our competitive landscape is 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 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, possiblePossible sanctions that may be imposed include 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 federal and state levels 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, 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 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.

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, 2010,2012, we had 7796 full-time employees including 29 investment management, research(85 based in the United States and trading professionals, 26 marketing and client service professionals, and 22 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 footnote 13 “Segment Reporting” inNote 14 to 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 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, a significant amountportion of our assets under management is invested in equity securities of companies with large market 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), Global Strategic Diversification, an MLP portfolio and SMidCap Plus+, to launch 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 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 areif 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 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 in 2008. 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; this client did not pay a performance fee in 2009 or 2010 and accounted for less than 1% of our revenues for the years ended December 31, 2009 and 2010.

Our four largest clients accounted for approximately 12.2%12.6% of fee revenues for the year ended December 31, 2010.2012. We are dependent to a significant degree on our ability to maintain existingour 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 performance-based advisory 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 willable to outperform relative to 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 feesfee in 2009 or 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 barring 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 management from our operations, and could also result in regulatory sanctions. Additionally, any suchSuch fraudulent actions could also adversely affect some 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 unsuccessful 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 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.

Acquisitions executed by usOur 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.

We have made two business acquisitions in the last two years. There is no guarantee that these acquisitions willThe McCarthy acquisition may not yield the benefits that we forecasted due to a variety of factors, including retentionour failure to retain the clients of acquired clients.the businesses we acquired. If these acquisitions dothis 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 transactions.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, 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. Currently, our primary source of cash consists 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 be inadequate 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 then existing holders of our common stockstockholders 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 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 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 Board of Directors 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 approximately 25,555 square feet of leased office space with approximately 21,600 square feet, expanding to 25,555 square feet in the third quarter of 2011, located in Dallas, Texas. TheTexas pursuant to a lease with an initial term of the lease agreementthat expires in November 2021. In addition, we lease office space with approximately 5,045 square feet locatedof office space in Omaha, Nebraska pursuant to a lease with an initial term that expires in July 2014.2014 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 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, 2010,2012, there were approximately 177175 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.

Dividends

We have declared a cash dividend on our common stock for each quarter since the date that our common stock was first publicly traded. The table below sets forth the dividends declared for the periods indicated.

In addition, on February 3, 20117, 2013 we declared a quarterly cash dividend of $0.35$0.40 per share on our common stock payable on April 1, 20112013 to stockholders of record on March 15, 2011.2013. We currently intend to continue paying cash dividends in such amounts as our Board of Directors determines aremay determine to be appropriate. Any future paymentpayments of cash dividends will be at the discretion of the Board of Directors and subject to limitations under the Delaware General Corporation Law.

Westwood Holdings Group Inc. is the sole stockholder of both Westwood Management, Westwood Trust and Westwood Trust.International. Westwood Trust is limited under applicable Texas law in the payment of dividends to the amount of undivided profits, which is defined 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 of Directors’ resolutions.

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information as of December 31, 20102012 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under the Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan, our only equity compensation plan in effect at that time. The material terms of this plan were approved by our stockholders at our 20092011 Annual Meeting and are discussed in note 9Note 10 of the financial statements included in this Form 10-K.

PERFORMANCE GRAPH

The following graph compares total stockholder returns of Westwood since December 31, 20052007 with the total return of the Russell 2000 Index and the SNL Asset Manager Index. The SNL Asset Manager Index is a composite of 3133 publicly-traded asset management companies.

The total return for our stock and for each index assumes $100 invested on December 31, 20052007 in our common stock, the Russell 2000 Index, and the SNL Asset Manager Index, including reinvestment of dividends. Our common stock is traded on the NYSE under the ticker symbol “WHG.”

The closing price of our common stock on the last trading day of the year ended December 31, 20102012 was $39.96$40.90 per share. Historical stock price performance is not necessarily indicative of future price performance.

Item 6.

Selected Consolidated Financial Data.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data, presented below for the five years ended December 31, 2010, except Assets Under Management, is derived from our consolidated financial statements as audited by Grant Thornton LLP, independent registered public accounting firm as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006, and should be read in conjunctiontogether with those statements. The earnings per share amounts set forth below for the years ended December 31, 2009, 2008, 2007 and 2006 were retrospectively adjusted in order to conform to the current year presentation, which uses the two-class method. For a further discussion of the two-class method please see “Note 10. EARNINGS PER SHARE” in the financial statements included in this Report. The information set forthassets under management data presented below, should be read in conjunction with “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Report.

Item 7.

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

You should read the following discussion and analysis in conjunction with “Selected Consolidated Financial Data” included in this Report, as well as our consolidated financial statements and related notes thereto appearing elsewhere in this Report.

Forward-Looking Statements

Statements in this Report and the Annual Report to Stockholders that are not purely historical facts, including, without limitation, statements about our expected future financial position, results of operations or cash flows, as well as other statements including, without limitation, words such as “anticipate,” “forecast”, “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “may,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results, our financial condition, and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements due to a number of factors, including, without limitation, those set forth below:include, among others:

Additional factors that could cause our actual results and financial condition to differ materially from our expectationsthose indicated in the forward-looking statements are discussed under the section entitled “Risk Factors” and elsewhere in this Report. You should not rely unduly on theseThe forward-looking statements whichare based only on currently available information and speak only as of the date of this Report. Other unknown or unpredictable factors may cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and may be beyond our control. Except as required by law, weWe are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this Report or to reflect the occurrence of unanticipated events.events or otherwise.

Overview

We manage investment assets and provide services for our clients through our two subsidiaries, Westwood Management, Westwood Trust and Westwood Trust.International. Westwood Management provides investment advisory services to corporate retirement plans,and public retirement plans, endowments and foundations, the WHGWestwood Funds^TM, other mutual funds, individuals and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood International was established in the second quarter of 2012 and provides global equity and emerging markets investment advisory services to institutional clients, Westwood Funds^TM and common trust funds sponsored by Westwood Trust. Our revenues are generally derived from fees based on a percentage of assets under management, and at December 31, 20102012 Westwood Management, Westwood Trust and Westwood TrustInternational collectively managed assets valued at approximately $12.5$14.2 billion.

With respect to the bulk of our client assets under management, we utilize a “value” investment style focused on achieving superior long-term, risk-adjusted returns by investing in companies with high levels of free cash flow, improving returns on equity, strengthening balance sheets and well positioned for growth but whose value is not fully recognized in the marketplace. This investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term. Our investment teams have significant industry experience. Our investment team has average investment experience of fifteen years while one third of our team has worked together at Westwood for over six years.

We have been providing investment advisory services since 1983 and, according to recognized industry sources including Morningstar, Inc., our principal asset classes have consistently ranked above the median in performance within their peer groups when measured over multi-year periods.

One of the prioritiesfocused on which we have focused since our spin-off in 2002 is to buildbuilding a foundation in terms of personnel and infrastructure to support a potentially much larger business. We have also developed productsinvestment strategies that we believe will be desirable within our target institutional, private wealth and mutual fund markets. The cost of developing new products and the organization as a whole has resulted in our incurring expenses that, in some cases, do not currently have materialsignificant offsetting revenue. Now werevenues. We believe that the appropriate foundation and the products are now in place we are taking these new products to our served markets in the beliefand believe that investors will recognize the value in these products, and will generatethereby generating new revenue streams for us.

2012 Highlights

We began marketing our SMidCap Value product to institutional investment consultants in late 2004. As a result of this targeted marketing effort and strong investment performance, assets in SMidCap Value increased from $78 million atThe following items are highlights for the year ended December 31, 2004 and reached its $3 billion asset capacity in 2010. Accordingly, the SMidCap Value asset class was closed to new investors in 2010. The WHG SMidCap mutual fund remains open only to existing investors. In July 2010, we launched the SMidCap Plus+ product, which is managed by the same team that manages the SMidCap product. We believe SMidCap Plus+ will be an attractive investment alternative to clients looking to invest in small to mid size companies. We continue to devote significant marketing efforts to our target markets for our LargeCap Value, SmallCap Value, AllCap Value, Income Opportunity, SMidCap Plus+ and other products.2012:

In November 2010, we completed the acquisition of McCarthy Group Advisors, L.L.C. (McCarthy), a Nebraska limited liability company and registered investment advisor based in Omaha, Nebraska with $1.1 billion of assets

Between December 2005

Revenues

We derive our revenues from investment advisory fees, trust fees, and other revenues. Our advisory fees are generated by Westwood Management and Westwood International, which managesmanage client accounts under investment advisory and subadvisory agreements. Advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements. Westwood Management’s and Westwood International’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. Westwood Management recognizesand Westwood International recognize revenues as services are rendered. A limited number of our clients have aagreed to contractual performance-based fee component in their contract,fees, which generatesgenerate additional revenues if we outperform a specified index over a specific period of time. We record revenue for performance-based fees at the end of the measurement periods. In 2008, we recognized a performance-based fee for a client in the second quarter and a separate performance-based fee for another client in the fourth quarter. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter. Consequently, there is not a significant amount of deferred revenue contained in our financial statements.

Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of assets under management. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. Most trust fees are paid quarterly in advance and are recognized as services are rendered. Since billing periods for the majority of Westwood Trust’s advance paying clients coincide with the calendar quarter to which payment relates, related revenue is fully recognized within the quarter and consequently there is not a significant amount of deferred revenue contained in our financial statements.

Our other revenues generally consist of interest and investment income. Although we invest most of our cash in U.S. Treasury securities, we also invest in equity and fixed income instruments and money market funds.funds, including the Westwood Funds^TM and common trust funds sponsored by Westwood Trust.

Assets Under Management

Assets under management increased $2.3$1.1 billion, or 23%8%, to $14.2 billion at December 31, 2012 compared to $13.1 billion at December 31, 2011. Quarterly average assets under management increased $786 million, or 6%, to $13.7 billion for 2012 compared with $12.9 billion for 2011.

Assets under management increased $602 million, or 5%, to $13.1 billion at December 31, 2011 compared to $12.5 billion at December 31, 2010 compared to $10.2 billion at December 31, 2009.2010. Quarterly average assets under management increased $2.3$2.2 billion, or 27%20%, to $12.9 billion for 2011 compared with $10.7 billion for 2010 compared with $8.5 billion for 2009.

Assets under management increased $3.0 billion, or 42%, to $10.2 billion at December 31, 2009 compared to $7.2 billion at December 31, 2008. Quarterly average assets under management increased $747 million, or 10%, to $8.5 billion for 2009 compared with $7.7 billion for 2008.2010.

The following table sets forth our assets under management as of December 31, 2010, 20092012, 2011 and 2008:2010:

We have modified ourOur assets under management disclosure to representreflects management’s view of our three main linestypes of business:accounts: institutional, private wealth and mutual funds.

Roll-Forward of Assets Under Management

The increase in assets under management for the twelve monthsyear ended December 31, 2012 was primarily due to new inflows of $2.1 billion and market appreciation of $1.7 billion, partially offset by outflows of $2.7 billion. Inflows were driven primarily by inflows into institutional separate accounts, subadvisory mandates, the Westwood Funds^TM and private wealth accounts. Outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from private wealth accounts.

The increase in assets under management for the year ended December 31, 2011 was primarily due to new inflows of $2.4 billion, partially offset by outflows of $1.8 billion and market depreciation of $63 million. Inflows were driven primarily by inflows into institutional separate accounts, subadvisory mandates and the Westwood Funds^TM. Outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from the Westwood Funds^TM.

The increase in assets under management for the year ended December 31, 2010 was primarily due to market appreciation of $1.6 billion, the acquisition of $1.1 billion of assets in the McCarthy transaction and new inflows of $1.4 billion, partially offset by outflows of $1.9 billion. Inflows were driven primarily by additional inflows into the WHGWestwood Funds^TM, institutional separate accounts and subadvisory mandates. Outflows were primarily related to rebalancing and some account closings by institutional separate account clients and outflows from subadvisory mandates and the WHG Funds.

The decrease in assets under management for the twelve months ended December 31, 2008 was primarily due to market depreciation of $2.7 billion and outflows of $658 million, partially offset by inflows of $2.6 billion. Inflows were driven primarily by new subadvisory mandates and institutional separate accounts, additional inflows into existing subadvisory mandates, institutional separate accounts and the WHG Funds, and new private wealth accounts. Outflows were primarily related to rebalancing by institutional separate account clients and outflows from subadvisory mandates and the WHG Funds.^TM.

Results of Operations

In the second quarter of 2012, as part of our strategy to expand our research capabilities and product offerings, we established Westwood International, based in Toronto, Canada, to manage global and emerging markets equity strategies. Westwood International began providing investment management services during the third quarter of 2012 and ended the year with assets under management of $888 million. Westwood International had eleven full-time employees as of December 31, 2012. As Westwood International has only recently commenced operations, our Consolidated Statement of Comprehensive Income for the year ended December 31, 2012 includes $10.3 million in costs related to Westwood International’s operations and less than $2 million of revenues.

The following table and discussion of our results of operations is based upon data derived from our consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements, which are included elsewhere in this Report.

Year Ended December 31, 20102012 Compared to Year Ended December 31, 20092011

Total Revenue.In 20102012 our total revenues increased by 30%12% to $55.3$77.5 million compared with $42.6$68.9 million in 2009.2011. Asset-based advisory fees increased by 33%7% to $42.2$57.9 million in 20102012 from $31.8$54.2 million in 20092011 due to higher average assets under management primarily due toreflecting market appreciation of assets. We are eligible to earnearned a performanceperformance-based advisory fee of $1.3 million in 2011 dependent upon out-performance2012 compared $1.0 million in 2011, subject to an under-performance carry-forward from 2010. 20102011. Trust fees increased by 17%11% to $12.1 million from $10.3$15.0 million in 20092012 from $13.5 million in 2011 due to higher average assets under management primarily due toreflecting market appreciation of assets. Other revenues, which generally consist of interest and investment income, increased by 144%$3.1 million to $1.1$3.3 million in 20102012 compared with $455,000$219,000 in 20092011 primarily due to a $596,000$2.2 million increase in net realized gains, a $635,000 increase in unrealized gains and a $293,000 increase in dividend income, partially offset by a $34,000 decrease in interest income. The increase in realized gains and a $106,000 increase in net unrealized gains. Partially offsetting these increases was a decreaseprimarily due to the $1.9 million gain on sale of $67,000 in interest income.200,000 shares of Teton Advisors, Inc.

Employee Compensation and Benefits. Employee compensation and benefits, which generally consist of salaries, incentive compensation, equity-based compensation expense and benefits, increased by 22%25% to $29.0$43.7 million compared with $23.7$35.1 million in 2009.2011. This increase was primarily due to increases of $2.6$6.2 million in incentive compensation due to increased pre-tax income, $926,000the amortization of long-term incentive awards for Westwood International employees, $2.3 million in salary expense primarily due to additional hires at Westwood Management and Westwood Trust, salaries related to Westwood International and $632,000 in performance-based restricted stock expense from an award granted in April 2010 that included additional shares granted at a higher market price compared to prior grants, $778,000 in additional salary expense due to salary increases for certain employees and increased headcount, $677,000 in restricted stock expense from awardsshares granted in February 2010 at a higher market price than previous grants and $215,000 in higher 401k matching and profit sharing expense due to increased compensation.2012. We had 7796 full-time employees as of December 31, 20102012 compared to 6480 at December 31, 2009.2011.

Sales and Marketing. Sales and marketing costs consist of expenses associated with our marketing efforts, including travel and entertainment, direct marketing, and advertising costs. Sales and marketing costs increased by 43%14% to $823,000$1.1 million in 20102012 compared with $576,000$1.0 million in 2009. The increase is2011 primarily the result of increased travel relateddue to European marketing tours with subadvisory partner Pictet & Cie and increased direct marketing and travel expenses.

WHGWestwood Mutual Funds. WHGWestwood Mutual Funds expenses generally consist of costs associated with our marketing, distribution, administration and acquisition efforts related to the WHG Funds. WHGWestwood Funds^TM. Westwood Mutual Funds expenses increased 10%46% to $662,000$1.2 million in 20102012 compared with $600,000$790,000 in 2009. This increase is2011 primarily due to an increase of $133,000 in expense related to recording to fair value the deferred acquisition liability from a fund acquisition we made in 2009 and an increase of $86,000$219,000 in shareholder servicing fees due to higher fund assets. Partially offsetting these increases was a net decreaseassets and an increase of $104,000 in professional and legal fees due to the acquisition of the Philadelphia Fund and its reorganization into the WHG LargeCap Value Fund in 2009. In 2010 we incurred costs related to the reorganization of the McCarthy Multi-Cap Stock Fund, which was acquired in November 2010, into the WHG Dividend Growth Fund.subadvisor fees.

Information Technology. Information technology expenses are generally costs associated with proprietary investment research tools, computing hardware, software licenses, maintenance and support, telecommunications and other related costs. Information technology expense increased by 11%24% to $1.4$2.6 million in 20102012 compared with $1.2$2.1 million in 2009. The increase is2011 primarily due to increasesan increase of $94,000$236,000 in software maintenance and licenses mainly for upgraded client portfolio accounting and $37,000 forperformance reporting systems and an increase of $149,000 in research tools. A $35,000 decrease in IT environment support costs partially offset these increases.

Professional Services. Professional services expenses generally consist of audit, external subadvisor expense, legal and other professional fees. Professional services expenseexpenses increased by 92%48% to $2.9$4.4 million in 20102012 compared with $1.5$3.0 million in 2009.2011. The increase is primarily due to a $600,000 increase in advisory fees paid to external subadvisors due to growth common trust funds sponsored by Westwood Trust being temporarily invested in passive index funds in 2009, an increase of $504,000 in other professionalone-time recruiting and legal fees related to the McCarthy acquisition completed in 2010, other growth initiatives undertaken in 2010 and an increasehiring of $255,000 inWestwood International employees, increased legal fees primarily relatedand increased tax advisor expense. These increases were partially offset by decreased financial advisory expense due to the McCarthy acquisitiontermination of subadvisors on international common trust funds in the fourth quarter of 2011 and other legal fees.the second quarter of 2012 and lower audit fee expense.

General and Administrative. General and administrative expenses generally consist of costs associated with the lease of our office space, insurance, amortization of intangible assets, office supplies, custody expense, investor relations, charitable contributions and other miscellaneous expenses. General and administrative expenses increased by 9%16% to $2.8$4.5 million in 20102012 compared with $2.6$3.9 million in 2009.2011. The increase is primarily due to increases of $142,000 in amortization of intangible assets acquired in acquisitions made in 2009increased rent expense due to a new lease for our Dallas office effective September 2011 and 2010, $67,000 in trainingrent expense for our new Toronto office, non-marketing travel expenses related to Westwood International, increased state and seminarslocal tax expense, increased office supplies expense and $46,000 in research subscriptions.increased custody expenses. Partially offsetting these increases were decreases in director fee accrualstraining expenses and insurance expense.expenses related to our office relocation in 2011.

Provision for Income Taxes. Provision for income taxes increaseddecreased by 46%6% to $6.4$7.9 million in 20102012 compared with $4.4$8.4 million in 20092011. The effective tax rate increased to 39.6% from 36.4% in 2011 primarily due to higher income before taxes. The increase in the effectiveoperating losses from Westwood International, which is taxed at a lower Canadian tax rate, and provision to return adjustments from 35.9% in 2009 to 36.3% in 2010 was primarily due to more taxable income in the higherour 2011 federal income tax bracket.return.

Year Ended December 31, 20092011 Compared to Year Ended December 31, 20082010

Total Revenue.OurIn 2011 our total revenues decreasedincreased by 8%25% to $42.6$68.9 million compared with $55.3 million in 2009 compared with $46.5 million in 2008.2010. Asset-based advisory fees increased by 18%29% to $31.8$54.2 million in 20092011 from $27.0$42.2 million in 20082010 due to higher average assets under management primarily due to market appreciation of assets andacquired in the McCarthy transaction in November 2010 as well as net inflows from new clients. Performance-basedof assets. We earned a performance-based advisory fees decreased to zero from $8.7fee of $1.0 million in 2008 as2011 compared to no performanceperformance-based fees were earned in 2009.2010. Trust fees decreasedincreased by 6%12% to $10.3$13.5 million in 20092011 from $11.0$12.1 million in 20082010 due to lowerhigher average beginning-of-quarter assets under management in 2009. The vast majorityprimarily due to net inflows of Trust fees is billed in advance based on assets at the end of the previous quarter and were negatively impacted by sharp market declines in the fourth quarter of 2008 and the first quarter of 2009.assets. Other revenues, which generally consist of interest and investment income, increaseddecreased by 280%80% to $455,000$219,000 in 20092011 compared with $(253,000)$1.1 million in 2008. Other revenues increased2010 primarily due to a $1.6$1.0 million decrease in unrealized gains, partially offset by a $124,000 increase in net unrealizedrealized gains. Partially offsetting this increase were an increase of $456,000 in net realized losses and a $399,000 decrease in interest and dividend income.

Employee Compensation and Benefits. Employee compensation and benefits increased by 2%21% to $23.7$35.1 million compared with $23.2$29.0 million in 2008.2010. This increase was primarily due to an increaseincreases of $931,000$3.1 million in incentive compensation due to increased pre-tax income, $1.6 million in salary expense primarily due to a full year of salary expense for our Omaha office in 2011 as well as additional hires in the Dallas office and $700,000 in restricted stock expense due to additional restricted stock grantsa higher number of shares granted in February 2009 as well as the2011 and at a higher market price at the time the shares were granted compared to prior grants, and an increase of $526,000 in salary expense due to salary increases for certain employees and increased headcount. These increases were partially offset by decreases of $845,000 in incentive compensation expense and $203,000 in profit sharing contributions, both due to lower pretax income.than previous grants. We had 6480 full-time employees as of December 31, 20092011 compared to 6377 at December 31, 2008.2010.

Sales and Marketing. Sales and marketing costs decreasedincreased by 28%21% to $576,000$994,000 in 20092011 compared with $803,000$823,000 in 2008. The decrease was2010 primarily the result of decreases in traveldue to referral fees on acquired assets and entertainment costs of $135,000 and inincreased direct marketing expense of $69,000.expenses.

WHGWestwood Mutual Funds. WHG mutual fundsWestwood Mutual Funds expenses increased 56%19% to $600,000$790,000 in 20092011 compared with $384,000$662,000 in 2008. This increase was2010 primarily due to an increase of $358,000 in shareholder servicing fees due to higher fund assets partially offset by decreases in adjusting deferred acquisition liabilities to fair value from a $164,000 increase2009 fund acquisition and in legalprofessional fees and a $40,000 increase in direct marketing expense. Legal fees were related to the reorganization of the PhiladelphiaMcCarthy Multi-Cap Stock Fund into the WHG LargeCap ValueWestwood Dividend Growth Fund. On November 16, 2009, we acquired the business and substantially all assets of Baxter Financial Corporation related to its management of the Philadelphia Fund. In connection with this acquisition, the Philadelphia Fund was reorganized into the WHG LargeCap Value Fund and we recorded total assets of $2.7 million and deferred liabilities of $1.7 million. A financial consideration was paid on the closing date and we are obligated to pay deferred payments twelve and twenty-four months from the transaction closing date.

Information Technology. Information technology expenseexpenses increased by 10%52% to $1.2$2.1 million in 20092011 compared with $1.1$1.4 million in 20082010 primarily due to increasesan increase of $48,000 in IT environment support costs, $43,000$478,000 in software maintenance and licenses mainly for upgraded client portfolio accounting and $43,000performance reporting systems and an increase of $146,000 in data fees.research tools.

Professional Services. Professional services expense decreasedexpenses increased by 12%1% to $1.5$3.0 million in 20092011 compared with $1.7$2.9 million in 2008.2010. The decrease wasincrease is primarily due to a $354,000 decrease$176,000 increase in audit fees related to additional audits required for investment vehicles that hold client assets and a $176,000 increase in advisory fees paid to external subadvisors due to growth in subadvised common trust funds sponsored by Westwood Trust being temporarily invested in passive index funds. Increasespartially offset by a decrease of $73,000$187,000 in legal expensefees primarily related to the 2010 McCarthy acquisition and $56,000a decrease of $159,000 in other professional fees partially offsetrelated to the decrease.McCarthy acquisition and other growth initiatives undertaken in 2010.

General and Administrative. General and administrative expenses decreasedincreased by 3%39% to $2.6$3.9 million in 20092011 compared with $2.7$2.8 million in 2008. The decrease was2010 primarily due to declinesincreases of $82,000$343,000 in miscellaneous expenses, $43,000amortization of intangible assets acquired in occupancy2010 and $276,000 in rent expense related to a full year of lease expense for our Omaha office and $40,000a new lease for our Dallas corporate office and $136,000 in directors fees related to a new director fee structure. Partially offsetting these increases were decreases in custody expense partially offset by an increase of $121,000 in insurance expense for higher professional liability coverage due to the requirements of certain large new clients.and depreciation expenses.

Provision for Income Taxes. Provision for income taxes decreasedincreased by 26%31% to $4.4$8.4 million in 20092011 compared with $6.0$6.4 million in 20082010 primarily due to lowerhigher income before taxes. The effective tax rate was 35.9% in 2009 compared to 36.2% in 2008.

Supplemental Financial Information

As supplemental information, we are providing non-generally accepted accounting principles (“non-GAAP”) performance measures that we refer to as economic earningsEconomic Earnings and economic expenses.Economic Expenses. We provide these measures in addition to, but not as a substitute for, net income and total expenses, which are reported on a U.S. generally accepted accounting principles (“GAAP”) basis. Both our Management and the Board of Directors review economic earningsEconomic Earnings and economic expensesEconomic Expenses to evaluate our ongoing performance, allocate resources and review dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income and total expenses, are useful for both management and investors to evaluate our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without considering financial information prepared in accordance with GAAP.

In calculating economic earnings,Economic Earnings, we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock and stock options, amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill. We define economic expensesEconomic Expenses as total expenses less non-cash equity-based compensation expense and amortization of intangible assets. Although depreciation on property and equipment is a non-cash expense, we do not add it back when calculating economic earningsEconomic Earnings or deduct it when calculating economic expensesEconomic Expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.

For the year ended December 31, 2010,2012, our economic earnings increasedEconomic Earnings decreased by 33%8% to $20.8$23.2 million compared with $15.6$25.3 million for the year ended December 31, 2009,2011, primarily due to a 30% increase in total revenues.Economic Expenses.

The following table provides a reconciliation of net income to economic earningsEconomic Earnings and total expenses to economic expensesEconomic Expenses for the years presented: