What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 172 added, 194 removed, 294 unchanged (55% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The consolidated financial statements include the accounts of OPY and its consolidated subsidiaries (together, the "Company", "we", "our" or "us").

The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the years ended December 31, 2021 and 2020.

For a discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report.

The consolidated financial statements include the accounts of Oppenheimer Holdings Inc.

and its consolidated subsidiaries (together, the "Company", "Firm", "we", "our" or "us").

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report.

The Company engages in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, market-making, research, investment banking (both corporate and public finance), investment advisory and asset management services and trust services.

Oppenheimer Holdings Inc., through its operating subsidiaries, is a leading middle market investment bank and full service broker-dealer that is engaged in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, market-making, research, investment banking (both corporate and public finance), investment advisory and asset management services and trust services.

Its principal subsidiaries are Oppenheimer & Co.

("Oppenheimer") and Oppenheimer Asset Management Inc.

As of December 31, 2020, we provided our services from 92 offices in 24 states located throughout the United States, offices in Tel Aviv, Israel, Hong Kong, China, London, England, St.

Helier, Isle of Jersey, Frankfurt, Germany and Geneva, Switzerland.

Client assets administered as of December 31, 2020 totaled $104.8 billion.

The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor direct programs.

At December 31, 2020, client assets under management ("AUM") totaled $38.8 billion.

As of December 31, 2021, we provided our services from 92 offices in 24 states located throughout the United States, offices in Puerto Rico, Tel Aviv, Israel, Hong Kong, China, London, England, St.

Helier, Isle of Jersey, Munich, Germany and Geneva, Switzerland.

Client assets under administration ("CAUA") as of December 31, 2021 totaled $122.1 billion.

The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's financial advisor directed programs.

At December 31, 2021, client assets under management LLC ("AUM") totaled $46.2 billion.

We also provide trust services and products through Oppenheimer Trust Company of Delaware and discount brokerage services through Freedom Investments, Inc.

2 unchanged sentences

We are focused on growing our private client and asset management businesses through strategic additions of experienced financial advisors in our existing branch system and employment of experienced money management personnel in our asset management business as well as deploying our capital for expansion through targeted acquisitions.

We are also focused on opportunities in our capital market businesses where we can acquire experienced personnel and/or business units that will improve our ability to attract institutional clients in both equities and fixed income without significantly raising our risk profile.

In investment banking we are committed to grow our footprint by adding experienced bankers within our existing industry practices.

We continuously invest in and improve our technology platform to support client service and to remain competitive while continuously managing expenses.

We are increasingly creating and investing in private market opportunities on our own behalf and on behalf of qualified clients.

We are also focused on opportunities in our capital market businesses where we can employ individual experienced personnel and/or small units that will improve our ability to attract institutional clients in both equities and fixed income without significantly raising our risk profile.

In investment banking we are committed to grow our footprint by adding experienced bankers within our existing industry practices as well as in new industry areas in which we believe we can be successful.

We continuously invest in and improve our technology platform to support client service and to remain competitive while carefully managing expenses.

The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to grow and develop the existing trading, investment banking, investment advisory and other divisions.

1 unchanged sentence

We recognize the importance of compliance with applicable regulatory requirements and are committed to performing rigorous and ongoing assessments of our compliance and risk management effort, and investing in people and programs, while providing a platform with first class investment programs and services.

The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where competitors have shown some success.

The Company is also reviewing its full service business model to determine the opportunities available to build or acquire closely related businesses in areas where others have shown some success.

Equally important is the search for viable acquisition candidates.

Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of corporate goals and personnel at a price that would provide our shareholders with incremental value.

Our long-term intention is to pursue growth by acquisition where we can find a comfortable match in terms of

corporate goals and personnel at a price that would provide our shareholders with incremental value.

We review potential acquisition opportunities from time to time on the basis of fulfilling the Company's strategic goals, while evaluating and managing our existing businesses.

In addition, the Company may from time to time make minority private investments out of excess capital in allied or unrelated businesses with the goal of syndicating the investment to eligible clients or to retain ownership because we believe them to be an attractive investment.

In addition, the Company may from time to time make minority private investments out of excess capital in allied or unrelated businesses with the goal of either syndicating the investment to eligible clients or retaining ownership because we believe them to be an attractive investment.

Impact of Interest Rates

The Federal Reserve Bank implemented a series of increases in its benchmark short-term interest rate between December 2015 and December 2018.

These increases in short-term interest rates had a significant positive impact on our overall financial performance, as we have programs offered to our clients (for the investment of short-term funds as well as margin loans) which

are sensitive to changes in interest rates.

Given the relationship of our interest-sensitive assets to liabilities, increases in short-

term interest rates generally result in an overall increase in our net earnings.

While the Federal Reserve increased short-term interest rates during that period, market deposit rates paid on client cash balances were not impacted to as great a degree, resulting in an increase in fees the Company earned from FDIC insured deposits of clients offered by the Company.

During the last two years, the Federal Reserve reduced short-term interest rates resulting in a decrease in fees the Company earned from FDIC insured deposits of clients through a program offered by the Company.

Decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances have a negative impact on our earnings.

The Federal Reserve reduced its benchmark rate significantly during two separate unscheduled meetings in March 2020 by a total of 1.50%.

Accordingly, the Company’s earnings during the full year of 2020 were negatively impacted by such decreases.

Recently, clients' domestic cash sweep balances have increased to levels that we have not seen since around April 2017.

The impact of low interest rates will continue to be significant for the foreseeable future as the Federal Reserve has stated that these lower rates are likely to persist for the next several years.

The Federal Reserve has reduced short-term interest rates, largely due to the impact of the COVID-19 Pandemic and its out-sized negative impact on the economy, resulting in a decrease in fees the Company earned from FDIC-insured deposits of clients through a program offered by the Company.

Decreases in short-term interest rates, increases in deposits rates paid to clients, and/or a significant decline in our clients' cash balances have a negative impact on our earnings.

The Federal Reserve reduced its benchmark rate significantly during two separate unscheduled meetings in March 2020.

Low interest rates have continued to negatively impact our earnings in an otherwise favorable environment.

The Federal Reserve has commenced tapering its purchase of U.S.

Treasuries and mortgage-backed securities which is scheduled to be completed by March 2022 with no further planned purchases thereafter.

Recently the Federal Reserve announced its intention to begin increasing the discount rate in increments beginning in March 2022 with the markets believing that there may be up to five such increases during 2022.

The increase in interest rates if and when they take place will be favorable to the Company’s interest-based revenues.

However, such increases while bringing down inflationary pressures may also prove detrimental to economic expansion and thereby to financial markets in general.

The impact of rate increases seems likely to increase volatility in financial markets, decrease the value of fixed income investments and impact equity share prices.

CORONAVIRUS DISEASE 2019 ("COVID-19 PANDEMIC")

The Company continues to monitor the effects of the COVID-19 pandemic both on a national level as well as regionally and locally and is responding accordingly.

In addition, we continue to provide frequent communications to clients, employees, and regulators.

In addition, we continue to provide frequent communications to clients, employees, and regulators regarding the impact of COVID-19 on our business.

We have adopted enhanced cleaning practices and other health protocols in our offices, taken measures to significantly restrict non-essential business travel and have practices in place to mandate that employees who may have been exposed to COVID-19, or show any relevant symptoms, self-quarantine.

3 unchanged sentences

To date, there have been no significant disruptions to our business or control processes as a result of this dispersion of employees.

Recent outbreaks in various states indicate that COVID-19 will continue to impact the economy and, by extension, our business, well into 2021.

We currently anticipate that a large number of our employees will continue to work remotely for the indefinite future until vaccinations are more widely administered.

Given the recent surge in COVID-19 cases related to the omicron variant, many employees from our home office and branch locations are working remotely while employees from select groups are working from office locations given the nature of their responsibilities.

We anticipate employees returning to offices once the risks associated with the omicron variant subside while maintaining flexible work arrangements.

EXECUTIVE SUMMARY

The results for the fourth quarter and full year 2020 were outstanding and really showcased the strength of the platform and the dedication and commitment from our employees throughout this COVID-19 impacted year.

The combination of a low interest rate environment, high volatility, and a robust rally in equities over the last nine months provided the impetus for extremely favorable results for the year.

Our Capital Markets business continued to outperform with a record quarter and year for revenue and earnings, while the Wealth Management business continued to produce solid operating returns based on increased commission activity and higher fee income from assets under management.

The Wealth Management business got a significant boost from the record performance of the hedge funds that we sponsor which led to an increase in incentive fees from alternative investments in the fourth quarter of 2020 which are measured and earned at the end of each year.

Investment banking had its best quarter ever as the firm increased its market share during a robust period for equities issuance in the U.S.

capital markets.

M&A activity also picked up significantly during the fourth quarter with several notable advisory and placement fees.

Equities and fixed income sales and trading activity continued to be brisk as volatility remained elevated during the period.

The broader equities markets finished the year at record levels and were up 11.7% during the fourth quarter contributing to record assets under management at December 31, 2020, which will drive our advisory fee revenue for the first quarter of 2021.

Non-compensation expenses remained under close control and we were able to manage our operating environment throughout this year of remote work.

At year-end we continued to operate with about 90% of our employees working from home amid the increase in the reported infection rate from COVID-19.

We look forward to the return to some level of normalcy by the third quarter of 2021 as the rate of vaccination increases in the U.S.

and around the world.

The record results for the full year 2021 demonstrate the strength of our franchise and the countercyclical and balanced nature of our businesses.

The record results in our Capital Markets business helped offset the significantly lower incentive fees from alternative investments and bank deposit sweep income in Wealth Management.

Despite this, the Wealth Management business had record management fees and steady commission revenue contributing to very solid results during the year.

The performance of the Investment Banking division helped propel the Capital Markets business to record revenue and earnings for the year on very strong equity underwriting and M&A advisory fees.

The operating results of Capital Markets were also positively impacted by the establishment of a deferred compensation plan in December 2021.

The Company's operating results were the best in its history.

Operating results, however, were negatively impacted by an increase in legal and regulatory costs during the fourth quarter reversing a trend of decreases in those costs over the past several years.

Concerns impacting market sentiment continue to persist around inflation, higher oil prices, and the Federal Reserve's tapering of bond buying.

However, the prospects of moderately higher interest rates, a strong economy, and low unemployment, should provide a constructive backdrop for investors.

While our comparative operating results for the quarter were significantly impacted by the outsized impact of incentive fees in the fourth quarter of 2020, the overall business performed exceptionally well with record contributions from our Investment Bank and strong results across the board from our other businesses.

RESULTS OF OPERATIONS

22 unchanged sentences

Fiscal 2021 compared to Fiscal 2020

• Commission revenue was $401.6 million for the year ended December 31, 2021, an increase of 1.6% compared with $395.1 million for the year ended December 31, 2020 due to increased client activity in mutual funds, options, annuities, and mortgage backed securities partially offset by lower commission income on municipal bonds.

• Advisory fees were $451.2 million for the year ended December 31, 2021, a decrease of 0.9% compared with $455.3 million for the year ended December 31, 2020 due to a significant decrease in incentive fees from alternative investments partially offset by higher management fees from advisory programs during 2021.

• Investment banking revenue was $435.9 million for the year ended December 31, 2021, an increase of 96.1% compared with $222.3 million for the year ended December 31, 2020 driven by increased M&A activity and fees associated with a significant number of capital raising transactions (PIPES) in the healthcare and technology sectors completed during the 2021 year.

• Bank deposit sweep income was $15.6 million for the year ended December 31, 2021, a decrease of 55.3% compared with $34.8 million for the year ended December 31, 2020 due to lower short-term interest rates partially offset by higher average cash sweep balances.

• Interest revenue was $36.5 million for the year ended December 31, 2021, an increase of 9.0% compared with $33.5 million in 2020 due to higher average margin balances partially offset by lower short-term interest rates .

• Principal transactions revenue was $24.0 million for the year ended December 31, 2021, a decrease of 14.0% compared with $27.9 million for the year ended December 31, 2020 driven by lower income from investment grade,

high yield, emerging markets, and municipal bonds partially offset by higher income from corporate and convertible bonds.

• Other revenue was $29.3 million for the year ended December 31, 2021, a decrease of 1.7% compared to $29.8 million for the year ended December 31, 2020 primarily due to a decrease in the cash surrender value of Company-owned life insurance during 2021.

• Compensation and related expenses totaled $886.8 million during the year ended December 31, 2021, an increase of 15.0% compared with the year ended December 31, 2020.

The increase was due to increased incentive compensation costs during the year tied to significant increases in revenue during the year ended December 31, 2021.

Compensation and related expenses as a percentage of revenue was 63.6% for the year ended December 31, 2021 compared with 64.3% for the year ended December 31, 2020.

• Non-compensation expenses were $282.6 million during the year ended December 31, 2021, an increase of 9.2% compared with $258.7 million during the year ended December 31, 2020 due to increased legal, underwriting, travel and entertainment, and conference costs partially offset by reduced interest costs during the year ended December 31, 2021.

• The effective income tax rate for the year ended December 31, 2021 was 29.2% compared with 27.2% for the year ended December 31, 2020.

The higher tax rate in 2021 was primarily due to an increase in apportionment factors in state and local jurisdictions with higher statutory tax rates.

Fiscal 2020 compared to Fiscal 2019

• Commission revenue was $395.1 million for the year ended December 31, 2020, an increase of 23.4% compared with $320.1 million for the year ended December 31, 2019 as a result of increased volatility and client participation in active equities-related markets.

• Advisory fees were $455.3 million for the year ended December 31, 2020, an increase of 28.7% compared with $353.7 million for the year ended December 31, 2019 due to higher management fees and incentive fees from alternative investments.

• Investment banking revenue was $222.3 million for the year ended December 31, 2020, an increase of 76.1% compared with $126.2 million for the year ended December 31, 2019 due to significantly higher underwriting revenues from equities transactions and increased M&A activity later in the year.

• Investment banking revenue was $222.3 million for the year ended December 31, 2020, an increase of 76.1%compared with $126.2 million for the year ended December 31, 2019 due to significantly higher underwriting revenues from equities transactions and increased M&A activity later in the 2020.

• Bank deposit sweep income was $34.8 million for the year ended December 31, 2020, a decrease of 70.3% compared with $117.4 million for the year ended December 31, 2019 due to lower short-term interest rates partially offset by higher average cash sweep balances.

7 unchanged sentences

• The effective income tax rate for the year ended December 31, 2020 was 27.2% compared with 29.3% for the year ended December 31, 2019.

The lower effective tax rate for 2020 was primarily due to lower state and local income taxes, valuation allowance on foreign operations and other non-deductible expenses over higher pre-tax income in the current year compared to 2019.

Fiscal 2019 compared to Fiscal 2018

• Commission revenue was $320.1 million for the year ended December 31, 2019, a decrease of 2.9% compared with $329.7 million for the year ended December 31, 2018.

• Advisory fees were $353.7 million for the year ended December 31, 2019, an increase of 12.5% compared with $314.3 million for the year ended December 31, 2018 due to an increase in incentive fees earned from alternative investments during the fourth quarter of 2019.

• Investment banking revenue was $126.2 million for the year ended December 31, 2019, an increase of 9.4% compared with $115.4 million for the year ended December 31, 2018 due to higher merger and acquisition advisory fees offset by lower equities underwriting revenue during the 2019 year.

• Bank deposit sweep income was $117.4 million for the year ended December 31, 2019, an increase of 1.2% compared with $116.1 million for the year ended December 31, 2018.

• Interest revenue was $50.7 million for the year ended December 31, 2019, a decrease of 3.4% compared with $52.5 million in 2018.

• Principal transactions revenue was $30.1 million for the year ended December 31, 2019, an increase of 108.1% compared with $14.5 million for the year ended December 31, 2018.

During the third quarter of 2018, the Company participated in tender offers by issuers of ARS which resulted in recognized losses totaling $8.1 million.

The recognized losses were comprised of realized losses of $4.6 million related to tendering ARS holdings at prices below par and unrealized losses of $3.5 million related to revaluing the remaining affected ARS owned and commitments to purchase at the tender offer prices.

Additionally, the increase was due to higher trading profits in fixed income during the 2019 year.

• Other revenue was $35.1 million for the year ended December 31, 2019, an increase of 122.6% compared to $15.8 million for the year ended December 31, 2018 primarily due to an increase in the cash surrender value of Company-owned life insurance during 2019.

• Compensation and related expenses totaled $657.7 million during the year ended December 31, 2019, an increase of 8.3% compared with the year ended December 31, 2018.

The increase was due to higher salaries, producer, incentive, share-based, and deferred compensation expenses during the year ended December 31, 2019.

The Company recorded compensation and related expenses of $3.7 million related to its OARs Plan during the year ended December 31, 2019 compared with $0.7 million during the year ended December 31, 2018.

Compensation and related expenses as a percentage of revenue was 63.6% for the year ended December 31, 2019 compared with 63.4% for the year ended December 31, 2018.

• Non-compensation expenses were $300.8 million during the year ended December 31, 2019, a decrease of 1.7% compared with $306.1 million during the year ended December 31, 2018 due primarily to lower legal and regulatory costs partially offset by higher communication and technology costs and underwriting deal-related costs during the year ended December 31, 2019.

• The effective income tax rate for the year ended December 31, 2019 was 29.3% compared with 35.6% for the year ended December 31, 2018.

The elevated effective tax rate for the year ended December 31, 2018 was partially due to the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the Company's operations in Europe.

BUSINESS SEGMENTS

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months and year ended December 31, 2020 and 2019:

The table below presents information about the reported revenue and pre-tax income (loss) of the Company's reportable business segments for the three months and years ended December 31, 2021 and 2020:

(Expressed in thousands)

14 unchanged sentences

Private Client

Private Client reported revenue of $642.1 million for the year ended December 31, 2020, 1.7% lower compared with a year ago.

Pre-tax income of $122.8 million in the year end resulted in a pre-tax profit margin of 19.1%.

Financial advisor headcount declined amid increased retirements to 1,002 at the end of 2020 compared to 1,032 at the end of 2019, although the productivity of our financial advisors increased significantly reflecting higher individual production levels.

Private Client reported revenue of $665.1 million for the year ended December 31, 2021, 3.6% higher compared with a year ago.

Pre-tax income of $101.1 million in the year ended December 31, 2021 resulted in a pre-tax profit margin of 15.2%.

Financial advisor headcount declined amid retirements to 996 at the end of 2021 compared to 1,002 at the end of 2020, although the productivity of our financial advisors increased significantly reflecting higher individual production levels.

(Expressed in thousands, except financial advisor headcount or otherwise indicated)

10 unchanged sentences

Non-compensation 116,946 107,218 9.1

Pre-Tax Income $ 101,146 $ 122,844 (17.7)

Compensation Ratio 67.2 % 64.2 % 4.7

Non-compensation Ratio 17.6 % 16.7 % 5.4

Pre-Tax Margin 15.2 % 19.1 % (20.4)

CAUA (billions) $ 122.1 $ 104.8 16.5

1 unchanged sentence

Financial Advisor Headcount 996 1,002 (0.6)

• Retail commissions were $209.4 million for the year ended December 31, 2020, an increase of 11.0% from a year ago as a result of increased volatility and client participation in active equities-related markets including options.

• Advisory fees increased 23.4% due to increases in management fees from advisory programs and incentive fees from alternative investments during the year.

Incentive fees allocated to this segment were $61.7 million for the current year versus $20.8 million last year.

• Bank deposit sweep income decreased 70.3% from a year ago due to lower short-term interest rates partially offset by higher average cash sweep balances.

• Interest revenue declined 29.8% from a year ago due to lower short-term interest rates partially offset by higher average margin balances.

• Other revenue decreased 1.8% primarily due to decreases in the cash surrender value of Company-owned life insurance policies.

• Compensation expenses increased 13.6% primarily due to increased production and share-based compensation costs partially offset by lower deferred compensation.

• Non-compensation expenses decreased 15.5% primarily due to lower interest, legal and regulatory costs as well as travel and entertainment costs.

• Retail commissions were $217.7 million for the year ended December 31, 2021, an increase of 4.0% from a year ago due to increased client activity in mutual funds, options, annuities, and mortgage backed securities partially offset by lower commission income on municipal bonds.

• Advisory fees increased 6.0% due to increases in management fees from advisory programs partially offset by significantly lower incentive fees from alternative investments.

Incentive fees allocated to this segment were $0.6 million for the 2021 year versus $61.7 million for the prior year.

• Bank deposit sweep income decreased 55.3% from 2020 due to lower short-term interest rates partially offset by higher average cash sweep balances.

• Interest revenue increased 16.5% from a year ago due to higher average margin balances partially offset by lower short-term interest rates.

• Other revenue increased 22.1% primarily due to increases in the cash surrender value of Company-owned life insurance policies.

• Compensation expenses increased 8.5% from 2020 primarily due to increased production and share-based compensation costs.

• Non-compensation expenses increased 9.1% from 2020 primarily due to higher legal costs.

Asset Management

10 unchanged sentences

Non-compensation 40,913 33,521 22.1

Pre-Tax Income $ 35,874 $ 71,625 (49.9)

Compensation Ratio 26.6 % 19.3 % 37.8

Non-compensation Ratio 39.1 % 25.7 % 52.1

Pre-Tax Margin 34.3 % 55.0 % (37.6)

AUM (billions) $ 46.2 $ 38.8 19.1

• Advisory fee revenue on traditional and alternative managed products was $130.3 million for the year ended December 31, 2020, an increase of 44.5% due to higher assets under management during the year as well as higher incentive fees from alternative investments.

Incentive fees allocated to this segment were $49.4 million for the 2020 year versus $16.7 million last year.

• Advisory fee revenue on traditional and alternative managed products was $104.6 million for the year ended December 31, 2021, a decrease of 18.5% due to significantly lower incentive fees from alternative investments partially offset by higher management fees from advisory programs.

Incentive fees allocated to this segment were $1.8 million for the 2021 year versus $49.4 million in 2020.

• AUM hit a record level of $46.2 billion at December 31, 2021, which is the basis for advisory fee billings for the first quarter of 2022.

The increase in AUM was comprised of higher asset values of $6.4 billion on existing client holdings and a net contribution of assets of $1.0 billion.

• Compensation expenses were down 0.2% and non-compensation expenses were up 4.9% when compared to the prior year.

• Compensation expenses increased 10.7% when compared to the prior year driven primarily by higher incentive compensation costs.

• Non-compensation expenses were up 22.1% when compared to the prior year primarily due to higher external portfolio management costs which are directly related to the increase in AUM.

The following table provides a breakdown of the change in assets under management for the year ended December 31, 2021:

26 unchanged sentences

Capital Markets reported revenue of $625.7 million for 2021, 46.6% higher compared with a year ago.

Pre-Tax income was $83.4 million compared with a pre-tax loss of $13.7 million a year ago.

Pre-Tax income was $204.1 million compared with a pre-tax income of $83.4 million a year ago.

(Expressed in thousands )

14 unchanged sentences

Non-compensation 102,764 91,613 12.2

• Advisory fees earned from investment banking activities increased 50.7% to $80.5 million for the year ended December 31, 2020 compared with $53.4 million for the year ended December 31, 2019 driven by increased M&A activity and fees associated with a significant number of capital raising transactions (PIPES) in the healthcare and technology sectors completed during the year.

• Equities underwriting fees increased 153.0% to $103.3 million for the year ended December 31, 2020 compared with $40.8 million for the year ended December 31, 2019 due to significantly higher levels of capital issuances in the equity markets particularly in healthcare and technology sectors.

• Fixed income underwriting fees increased 10.6% to $87.0 million for the year ended December 31, 2020 compared with $75.8 million for the year ended December 31, 2019 primarily driven by public finance issuances during the year, partially offset by lower underwriting fees in emerging markets.

• Equities sales and trading increased to $130.7 million for the year ended December 31, 2020, 30.9% higher compared to $99.8 million for the year ended December 31, 2019 due to elevated volatility in the equities markets during the year.

• Fixed income sales and trading increased 14.9% driven by robust trading in taxable fixed income during the year.

• Compensation expenses increased 29.8% primarily due to increased production and incentive compensation tied to increases in revenue.

• Non-compensation expenses were 17.2% lower due to decreased interest costs and reduced costs associated with business travel and entertainment and conferences.

Critical Accounting Policies

The Company's accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements.

Pre-Tax Income $ 204,090 $ 83,442 144.6

Compensation Ratio 51.0 % 59.0 % (13.6)

Non-compensation Ratio 16.4 % 21.5 % (23.7)

Pre-Tax Margin 32.6 % 19.6 % 66.3

• Advisory fees earned from investment banking activities increased 141.8% to $194.8 million for the year ended December 31, 2021 compared with $80.5 million for the year ended December 31, 2020 driven by increased M&A activity and fees associated with a significant number of capital raising transactions (PIPES) in the healthcare and technology sectors completed during 2021.

• Equities underwriting fees increased 80.8% to $186.7 million for the year ended December 31, 2021 compared with $103.3 million for the year ended December 31, 2020 due to significantly higher levels of capital issuances in the equity markets particularly in the healthcare and technology sectors.

• Fixed income underwriting fees increased 32.4% to $27.0 million for the year ended December 31, 2021 compared with $20.1 million for the year ended December 31, 2020 primarily driven by public finance issuances during 2021.

• Equities sales and trading increased to $138.4 million for the year ended December 31, 2021, 5.9% higher compared to $130.7 million for the year ended December 31, 2020 due to higher income from institutional agency and convertible bonds.

• Fixed income sales and trading decreased 13.7% driven by lower income from investment grade, high yield, emerging markets, and municipal bonds partially offset by higher income from corporate and convertible bonds.

• Compensation expenses increased 26.7% primarily due to increased incentive compensation costs during the year tied to significant increases in revenue.

• Non-compensation expenses were 12.2% higher compared with the prior year due to increased legal, underwriting, travel and entertainment, and conference costs partially offset by reduced interest costs.

CRITICAL ACCOUNTING ESTIMATES

The Company's accounting estimates are essential to understanding and interpreting the financial results reported on the consolidated financial statements.

The significant accounting policies used in the preparation of the Company's consolidated financial statements are summarized in note 2 to those statements.

Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

The following is a discussion of these policies:

The following is a discussion of these estimates:

Fair Value Measurements

The accounting guidance for the fair value measurement of financial assets, defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures.

Critical estimates - The accounting guidance for the fair value measurement (ASC 820) of financial assets defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures.

Fair value, as defined by the accounting guidance, is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority):

When market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability.

Assumption and judgement - The fair value hierarchy established by ASC 820 prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority):

• Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

1 unchanged sentence

• Unobservable inputs that are significant to the overall fair value measurement.

The Company's financial instruments that are recorded at fair value generally are classified within Level 1 or Level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers.

Financial instruments classified within Level 1 are valued based on quoted market prices in active markets and consist of U.S.

Treasury and Agency securities, corporate equities, and certain money market instruments.

Level 2 financial instruments primarily consist of investment grade and high-yield corporate debt, convertible bonds, mortgage and asset-backed securities, and municipal obligations.

Financial instruments classified as Level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active.

The availability of observable inputs can vary for different products.

We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity.

Financial instruments are classified as Level 3 if observable pricing inputs are not available due to limited market activity for the asset or liability.

The valuation of financial instruments are classified in Level 3 of the fair value hierarchy consists of valuation techniques that incorporate one or more significant unobservable input, and therefore requires the greatest amount of management judgment.

As of December 31, 2021 the Company had $31.8 million in financial instruments, comprised of auction rate securities, classified within Level 3 of the fair value hierarchy.

See note 7 to the consolidated financial statements appearing in Item 8 for further information on the fair value definition, Level 1, Level 2 and Level 3 and related valuation technique.

I mpact if actual results differ from assumptions – we established an independent valuation process to evaluate and approve the valuation of our financial instruments.

For financial instruments that classified in Level 3, we review the appropriateness of the unobservable inputs to ensure consistency with how a market participant would arrive at the unobservable input.

Although an independent review process is in place, the fair value of the Level 3 financial instrument could be significantly different due to the sensitivity of some unobservable inputs (for example, interest rates) and it could also have a material adverse effect on our consolidated financial statements.

Legal and Regulatory Reserves

The Company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities.

The determination of the amounts of these reserves requires significant judgment on the part of management.

In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the Company can reasonably estimate the amount of that loss.

When loss contingencies are not probable or cannot be reasonably estimated, the Company does not establish reserves.

Critical estimates – In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions and other litigation, creating substantial exposure and periodic expenses.

Management is required to assess the probability of loss and estimate the amount of such loss when preparing its consolidated financial statements.

Assumption and judgement - The determination of the levels of these reserves requires significant judgment on the part of management.

In accordance with applicable accounting guidance, we established reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial

statements and we can reasonably estimate the amount of that loss.

When loss contingencies are not probable or cannot be reasonably estimated, we do not establish reserves.

When determining whether to record a reserve, management considers many factors including, but not limited to, the amount of the claim;

5 unchanged sentences

Any change in the reserve amount is recorded in the results of that period.

The assumptions of management in determining the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount.

In the first quarter of 2019, the Company adopted ASU 2016-02, "Leases".

The Accounting Standards Update ("ASU") requires the recognition of right-of use ("ROU") assets and lease liabilities on the consolidated balance sheet by lessees for those leases classified as operating leases under previous guidance.

ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term, excluding non-base rent components such as fixed common area maintenance costs and other fixed costs such as real estate taxes and insurance.

The discount rates used in determining the present value of leases are the Company’s incremental borrowing rates, developed based upon each lease’s term.

The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For operating leases, the ROU assets also include any prepaid lease payments and initial direct costs incurred and are reduced by lease incentives.

For these leases, lease expense is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.

The Company defines a reporting unit as an operating segment.

The Company's goodwill resides in its Private Client Division ("PCD") reporting unit.

Goodwill of a reporting unit is subject to at least an annual test for impairment to determine if the estimated fair value of a reporting unit is less than its carrying amount.

Goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Due to the volatility in the financial services sector and equity markets in general, determining whether an impairment of goodwill has occurred is increasingly difficult and requires management to exercise significant judgment.

The Company's annual goodwill impairment analysis performed at December 31, 2020 applied the same valuation methodologies with consistent inputs as that performed at December 31, 2019, as follows:

In estimating the fair value of the PCD reporting unit, the Company uses traditional standard valuation methods, including the market comparable approach and income approach.

The market comparable approach is based on comparisons of the subject company to public companies whose stocks are actively traded ("Price Multiples") or to similar companies engaged in an actual merger or acquisition ("Precedent Transactions").

As part of this process, multiples of value relative to financial variables, such as earnings or stockholders' equity, are developed and applied to the appropriate financial variables of the subject company to indicate its value.

The income approach involves estimating the present value of the subject company's future cash flows by using projections of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return ("Discounted Cash Flow" or "DCF").

Each of these standard valuation methodologies requires the use of management estimates and assumptions.

In its Price Multiples valuation analysis, the Company uses various operating metrics of comparable companies, including revenues, after-tax earnings, EBITDA as well as price-to-book value ratios at a point in time.

The Company analyzes prices paid in Precedent Transactions that are comparable to the business conducted in the PCD.

The DCF analysis includes the Company's assumptions regarding discount rate, and growth rates of the PCD's revenues, expenses, EBITDA, and capital expenditures, adjusted for current economic conditions and expectations.

The Company weighs each of the three valuation methods equally in its overall valuation.

Given the subjectivity involved in selecting which valuation method to use, the corresponding weightings, and the input variables for use in the analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of the PCD reporting unit.

At each annual goodwill impairment testing date, the PCD reporting unit had a fair value that was substantially in excess of its carrying value.

See note 19 to the consolidated financial statements appearing in Item 8 for further discussion.

Intangible Assets

Indefinite intangible assets are comprised of trademarks, trade names and an Internet domain name.

These intangible assets carried at $32.1 million, which are not amortized, are subject to at least an annual test for impairment to determine if the estimated fair value is less than their carrying amount.

The fair value of the trademarks and trade names was substantially in excess of its carrying value at December 31, 2020.

See note 19 to the consolidated financial statements appearing in Item 8 for further discussion.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations.

The Company records uncertain tax positions in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, "Income Taxes" on the basis of a two-step process whereby it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and, for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively, in its consolidated income statements.

The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S.

income taxes that would arise if such earnings were repatriated.

See note 17 to the consolidated financial statements appearing in Item 8 for further details.

Impact if actual results differ from assumptions – Due to the inherent uncertainties of the legal and regulatory proceedings, our judgement may be materially different from the actual outcome.

The assumptions we used to determine the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount.

Critical estimates – we are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate.

We are also subject to the tax laws of our international subsidiaries and branches.

These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

We record uncertain tax positions in accordance with ASC 740, "Income Taxes" on the basis of a two-step process whereby we determined whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and, for those tax positions that meet the more-likely-than-not recognition threshold, we will recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Assumption and judgement - We recognize deferred tax assets to the extent we believe these assets are more likely than not to be realized.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations.

In establishing a provision for income tax expense, we must make judgements and interpretations about the application of these inherently complex tax laws.

We estimate when certain items will affect taxable income in the various jurisdictions in the future.

We are also required to evaluate and measure all uncertain tax positions taken or expected to be taken on tax returns and to record liabilities for the amount of such positions that may not be sustained, may only be partially sustained, upon examination by the relevant taxing authorities.

See note 15 to the consolidated financial statements appearing in Item 8 for further details.

Impact if actual results differ from assumptions – Although we believe that our estimates and judgements are reasonable, actual results may differ from these estimates.

Some or all of these judgements are subject to review by the relevant taxing authorities.

If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we recorded, and we were not able to realize this benefit, our effective income tax rate in a given financial statement period could be materially affected and it could also have a material adverse effect on our consolidated financial statements.

New Accounting Pronouncements

1 unchanged sentence

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2020, total assets increased by 10.1% from December 31, 2019.

Total assets increased by 12.1% from December 31, 2020 to December 31, 2021.

The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit.

2 unchanged sentences

Oppenheimer has arrangements with banks for borrowings on a fully-collateralized basis.

The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, and changes in stock loan balances and financing through repurchase agreements.

The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, changes in stock loan balances and financing through repurchase agreements.

At December 31, 2021, the Company had $69.5 million of such borrowings outstanding compared to outstanding borrowings of $82.0 million at December 31, 2020.

16 unchanged sentences

We will continue to review our historical treatment of these earnings to determine whether our historical practice will continue or whether a change is warranted.

The Company has begun assessing the impact that the new presidential administration’s tax proposals will have on its operations and cash flows.

The Company has been assessing the impact that the current new presidential administration’s tax proposals will have on its operations and cash flows.

Senior Secured Notes

14 unchanged sentences

• effectively senior in right of payment to all unsecured and unsubordinated obligations of such Guarantor, to the extent of the value of the collateral owned by such Guarantor (and, to the extent of any unsecured remainder after payment of the value of the collateral, rank equally in right of payment with such unsecured and unsubordinated indebtedness of such Guarantor);

• senior in right of payment to any subordinated debt of the such guarantor;

• secured on a first-priority basis by the collateral, subject to certain exceptions and permitted liens, and it is intended that pari passu lien indebtedness, if any, will be secured on an equal and ratable basis.

• senior in right of payment to any subordinated debt of such Guarantor ( The Notes are secured on a first-priority basis by the collateral, subject to certain exceptions and permitted liens, and it is intended that pari passu lien indebtedness, if any, will be secured on an equal and ratable basis).

Each subsidiary guarantee is limited so that it does not constitute a fraudulent conveyance under applicable law, which may reduce the subsidiary’s obligation under the guarantee.

15 unchanged sentences

Total Revenue $ 10,193

Pre-Tax Income (Loss) (7,029)

Net Income (Loss) (4,922)

On September 14, 2020, S&P affirmed the Company's 'B+' Corporate Family rating and 'B+' rating on the Unregistered Notes and affirmed its stable outlook.

On September 21, 2020, Moody's Corporation affirmed the Company's Corporate Family ‘B1’ rating and affirmed its 'B1' rating on the Unregistered Notes and its stable outlook.

Pre-Tax Loss 210

On June 17, 2021, S&P upgraded the Company's Corporate Family rating and rating on the Unregistered Notes from 'B+' with a stable outlook to 'BB-' with a stable outlook.

On August 23, 2021, Moody’s upgraded the Company's Corporate Family rating and the rating on the Unregistered Notes from “B1” with a stable outlook to “Ba3” with a stable outlook.

For the most part, the Company's assets consist of cash and cash equivalents and assets that it can readily convert into cash.

The receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement.

The receivable from customers represents margin balances and amounts

due on transactions awaiting settlement.

The receivable from customers represents margin balances and amounts due on transactions awaiting settlement.

Our receivables are, for the most part, collateralized by marketable securities.

8 unchanged sentences

At December 31, 2021, bank call loans were $69.5 million ($82.0 million at December 31, 2020).

The average daily bank loan outstanding for the year ended December 31, 2020 wa s $82.8 million ($11.1 million for the year ended December 31, 2019).

The average daily bank loan outstanding for the year ended December 31, 2021 was $76.4 million ($82.8 million for the year ended December 31, 2020).

The largest daily bank loan outstanding for the year ended December 31, 2021 was $227.7 million ($324.3 million for the year ended December 31, 2020).

6 unchanged sentences

Certain of our repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company's fair value option election.

We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date.

We have elected the fair value option for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e.

We elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date in order for these instruments to more accurately reflect market and economic events in our earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e.

fair value versus carrying value) for certain assets and liabilities.

At December 31, 2021, we did not have any repurchase agreements and reverse repurchase agreements that did not settle overnight or have an open settlement date.

At December 31, 2020, the gross balances of reverse repurchase agreeme nts and repurchase agreements were $88.3 million and $430.8 million , respectively.

At December 31, 2021, the gross balances of reverse repurchase agreements and repurchase agreements were $30.4 million and $306.8 million, respectively.

The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the year ended December 31, 2021 was $120.3 million and $352.8 million, respectively ($170.7 million and $374.3 million, respectively, for the year ended December 31, 2020).

The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the year ended December 31, 2021 was $424.2 million and $636.7 million, respectively ($714.2 million and $803.0 million, respectively, for the year ended December 31, 2020).

At December 31, 2020, the gross leverage ratio was 4.0

Liquidity Management

7 unchanged sentences

Our reviews have resulted in plans that we believe would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.

Our primary long-term cash requirements include $124.0 million principal outstanding as of December 31, 2021 under our Senior Secured Notes (due in 2025) and $192.0 million of operating lease obligations.

The total cash requirement for interest expense related to the Notes and operating lease obligations is estimated to be approximately $48.6 million for the upcoming year.

(Expressed in thousands)

For the Years Ended December 31,

Cash (used in) provided by operating activities $ (54,059) $ 79,142

Cash provided by/(used in) operating activities $ 227,786 $ (54,059)

Cash used in investing activities (6,267) (3,941)

Cash provided by/(used in) financing activities 84,581 13,874

Net decrease in cash and cash equivalents $ (44,126) $ (11,125)

Net increase/(decrease) in cash and cash equivalents and restricted cash $ 306,100 $ (44,126)

Management believes that funds from operations, combined with our capital base and available credit facilities, are sufficient for our liquidity needs in the foreseeable future.

5 unchanged sentences

All such requirements have been met in the ordinary course with available collateral.

OFF-BALANCE SHEET ARRANGEMENTS

Information concerning our off-balance sheet arrangements is included in note 7 to the consolidated financial statements appearing in Item 8.

Such information is hereby incorporated by reference.

CONTRACTUAL OBLIGATIONS

The following table sets forth the Company's contractual obligations as of December 31, 2020:

(Expressed in thousands)

Year More than 5

Total 1-3 Years 3-5 Years

Operating Lease Obligations (1)(2)

$ 279,424 $ 42,512 $ 76,483 $ 58,891 $ 101,538

Committed Capital (3)

41,238 40,589 649 — —

Senior Secured Notes (4)(5)

159,547 8,766 13,750 137,031 —

ARS Purchase Commitments (3)

1,313 1,313 — — —

Total $ 481,522 $ 93,180 $ 90,882 $ 195,922 $ 101,538

(1) See note 4 to the consolidated financial statements appearing in Item 8 for additional information.

(2) Includes interest liability of $64.0 million.

(3) Includes commitments to provide bridge financing to a rental services company ($20.0 million), equity financing in a take-private transaction ($20.0 million), and unfunded obligations in private equity funds sponsored by the Company ($1.2 million).

See note 17 to the consolidated financial statements appearing in Item 8 for additional information.

(4) See note 12 to the consolidated financial statements appearing in Item 8 for additional information.

(5) Includes interest payable of $34.5 million through maturity.

CYBERSECURITY

10 unchanged sentences

Regulation Best Interest (U.S.)

On April 18, 2018, the SEC announced its proposed "Regulation Best Interest," a package of rulemakings and interpretations that address customers' relationships with investment advisers and broker-dealers.

On June 5, 2019, the SEC adopted a final version of this rulemaking package that included the adoption of Regulation Best Interest (“Reg BI”) as Rule 15l-1 under the Exchange Act.

Reg BI imposes a new federal standard of conduct on registered broker-dealers and their associated persons when dealing with retail clients and requires that a broker-dealer and its representatives act in the best interest of such client and not place its own interests ahead of the customer’s interests.

On June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”) as Rule 15l-1 under the Exchange Act.

Reg BI imposes a federal standard of conduct on registered broker-dealers and their associated persons when dealing with retail clients and requires that a broker-dealer and its representatives act in the best interest of clients and not place its own interests ahead of the customer’s interests.

Reg BI does not define the term “best interest” but instead sets forth four distinct obligations, disclosure, care, conflict of interest and compliance that a broker-dealer must satisfy in each transaction.

The effective date for compliance with Reg BI was June 30, 2020.

In addition to passing Reg BI the SEC also adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Advisers Act including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).

It is too early to predict what all the effects of the Reg BI Rules will have on the Company.

However, there is a need for enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices as well as limitations on certain kinds of transactions previously conducted in the normal course of business.

Compliance with Reg BI became effective on June 30, 2020.

In addition to adopting Reg BI, the SEC also adopted rules (i) requiring broker-dealers and investment advisers to provide a written relationship summary to each client, and (ii) clarifying certain interpretations under the Investment Advisers Act of 1940 including but not limited to when a broker-dealer's activity is considered “solely incidental” to its broker-dealer business and is, therefore, not considered investment advisory activity (collectively, the “Reg BI Rules”).

Reg BI requires enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the cessation of certain practices and limitations on certain kinds of transactions previously conducted in the normal course of business.

The new rules and processes related thereto may limit revenue and most likely will involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology as well as increased litigation costs.

The Company has reviewed its business practices and operating models in light of the Reg BI Rules and has made significant structural, technological and operational changes to our business leading up to the effective date of June 30, 2020 for compliance with the Reg BI Rules.

As a result, the Company conducted significant training of all its employees with respect to the requirements of Reg BI and made each of the required mailings (both electronic and conventional) prior to the effective date.

The Company believes that the changes made to its business processes will result in compliance with these new requirements.

As business is conducted under the Reg BI Rules, it is likely that additional changes may be necessary.

The Company made significant structural, technological and operational changes to our business practices to comply with the requirements of the Reg BI Rules and it is likely that additional changes may be necessary to continue to comply as more experience with the Reg BI Rules is gained.

Regulators have commenced reviews of the industry’s compliance with the requirements of Reg BI, including that of the Company.

See “Business – Regulation – Fiduciary Standard – Rulemaking by the U.S.

Department of Labor and SEC” in Part I, Item 1.

On December 18, 2020, the DOL published its final prohibited transaction exemption (“PTE”) addressing investment advice fiduciaries to ERISA plans and IRAs.

Similar to the proposal the DOL released in June of 2020 the final exemption takes a principles-based (rather than a prescriptive) approach to resolving conflicts that arise under ERISA when an investment advice fiduciary, its affiliate or a related party is paid certain types of compensation (such as commissions, trailing fees or revenue-sharing) or engages in certain principal transactions.

The final exemption should provide a new and more flexible approach to ERISA compliance for certain types of transactions, which financial institutions may choose to utilize in place of other existing exemptions.

Like the proposal (but in contrast to the precursor rule the DOL finalized in April 2016 that the U.S.

Court of Appeals for the Fifth Circuit later vacated in June 2018), the final exemption does not materially change the scope of fiduciary activities under ERISA, with the exception of including certain rollover-related advice as fiduciary advice.

The effective date for compliance with the PTE was February 1, 2022.

The Company believes many of steps taken by the Company to achieve

compliance with the Reg BI Rules will enable the Company to comply with the PTE.

The Company implemented certain additional processes above the actions taken to comply with the Reg BI Rules in order to ensure full compliance with the PTE.

Regulatory Environment

2 unchanged sentences

As of December 31, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

See note 18 of the Notes to Consolidated Financial Statements in Item 8 for further information on regulatory capital requirements.

See “Business – Regulatory - Regulatory Capital Requirements” in Part I, Item 1 and note 18 of the Notes to Consolidated Financial Statements in Item 8 for further information on regulatory capital requirements.

Other Regulatory Matters

Oppenheimer has been responding to information requests from the SEC’s Division of Enforcement relating to a former Oppenheimer financial advisor and his relationship with registered investment adviser Southport Capital and its affiliates.

See Item 3 “Legal Proceedings” for further information.

FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"

3 unchanged sentences

These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to:

(i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in regulatory requirements that could affect the cost and method of doing business, (v) general economic conditions, both domestic and international, (vi) competition from existing financial institutions, new entrants and other participants in the securities markets and financial services industry, (vii) potential cybersecurity threats, (viii) legal developments affecting the litigation experience of the securities industry and the Company, (ix) changes in foreign, federal and state tax laws that could affect the popularity of products sold by the Company or impose taxes on securities transactions, (x) the adoption and implementation of the SEC’s “Regulation Best Interest” and other regulations adopted in recent years, (xi) war, terrorist acts and nuclear confrontation as well as political unrest, (xii) the Company’s ability to achieve its business plan, (xiii) the effects of the economy on the Company’s ability to find and maintain financing options and liquidity, (xiv) credit, operational, legal and regulatory risks, (xv) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain’s January 2020 exit from the EU(“Brexit”), (xvi) the effect of technological innovation on the financial services industry and securities business, (xvii) risks related to election results, Congressional gridlock, political and social unrest, government shutdowns and investigations, trade wars, changes in or uncertainty surrounding regulation and threats of default by the Federal government, (xviii) risks related to changes in capital requirements under international standards that may cause banks to back away from providing funding to the securities industry, and (xviv) risks related to the severity and duration of the COVID-19 pandemic;

the pandemic’s impact on the U.S.

government on the nation's debt, (xviii) risks related to changes in capital requirements under international standards that may cause banks to back away from providing funding to the securities industry, and (xviv) risks related to the severity and duration of the COVID-19 Pandemic;

the COVID-19 Pandemic’s impact on the U.S.

and global economies;

and Federal, state and local governmental responses to the pandemic.

and federal, state and local governmental responses to the COVID-19 Pandemic.

There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis