NOTE 21 – NON-EMPLOYEE SHARE-BASED AND OTHER COMPENSATION

Share-based compensation plans

Fixed stock option plan

Absent a specific performance commitment, share-based awards granted to our independent contractor financial advisors are measured at their vesting date fair value and their fair value estimated at reporting dates prior to that time. The compensation expense recognized each period is based on the most recent estimated value. Further, we classify these non-employee awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings until these awards are exercised or forfeited.

Under one of our non-qualified fixed stock option plans, we may grant stock options to our independent contractor financial advisors. We issue new shares under this plan as it was approved by shareholders. Under the 2007 Stock Option Plan for Independent Contractors, we may grant up to 2,000,000 shares of common stock to independent contractor financial advisors. The 2007 plan was established to replace, on substantially the same terms and conditions, the 1990 plan. As of September 30, 2011, the 1990 plan still has options outstanding. Options granted prior to August 21, 2008 are exercisable five years after grant date provided that the financial advisors are still associated with us, disabled, deceased or recently retired. Options granted on or after August 21, 2008 are exercisable five years after grant date provided that the financial advisors are still associated with us or have terminated within 45 days, disabled, deceased or recently retired. Option terms are specified in individual agreements and expire on a date no later than the sixth anniversary of the grant date. Under these fixed stock option plans, the exercise price of each option equals the market price of our stock on the date of grant.

Expense (expense reduction) and income tax benefits related to our stock option grants to our independent contractor financial advisors are presented below:

	Year ended September 30,
	2011		2010		2009
	(in thousands)

Total share-based expense (expense reduction)	$	952	$	1,899	$	(5,291	)
Income tax benefits related to share-based expense		362		713		(1,987	)

The fair value of each fixed option grant awarded to an independent contractor financial advisor is estimated on the date of grant and periodically revalued using the Black-Scholes option pricing model with the following weighted-average assumptions used for fiscal years ended 2011, 2010 and 2009:

	Year ended September 30,
	2011	2010	2009

Dividend yield	1.62%	1.73%	2.34%
Expected volatility	44.14%	51.84%	44.44%
Risk-free interest rate	0.65%	0.88%	1.04%
Expected lives	2.54 yrs.	2.24 yrs	2.20 yrs

The dividend yield assumption is based on our current declared dividend as a percentage of the stock price. The expected volatility assumption is based on our historical stock price and is a weighted average combining (1) the volatility of the most recent year, (2) the volatility of the most recent time period equal to the expected lives assumption, and (3) the annualized volatility of the price of our stock since the late 1980s. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect at each point in time the options are valued. The expected lives assumption is based on the difference between the option's vesting date plus 90 days (the average exercise period) and the date of the current reporting period.

A summary of option activity of our fixed stock option plans under which awards are granted to our independent contractor financial advisors for the fiscal year ended September 30, 2011 is presented below:

	Options for shares			Weighted-average exercise price ($)		Weighted-average remaining contractual term (years)		Aggregate intrinsic value ($)

Outstanding at October 1, 2010		790,438		$	26.07		-
Granted		40,900			28.74		-
Exercised		(343,388	)		21.62		-
Forfeited		(10,950	)		30.29		-
Expired		(2,250	)		22.87		-
Outstanding at September 30, 2011		474,750		$	29.45	$	2.06	$	383,000

Exercisable at September 30, 2011		4,500		$	21.50	$	0.01	$	20,000

As of September 30, 2011, there was $417,000 of total unrecognized pre-tax compensation cost, net of estimated forfeitures, related to unvested stock options granted to our independent contractor financial advisors based on an estimated weighted-average fair value of $3.99 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately 2.9 years. The following activity occurred under our fixed stock option plans available for grants to our independent contractor financial advisors:

	Year ended September 30,
	2011		2010		2009
	(in thousands)

Total intrinsic value of stock options exercised	$	3,300	$	2,676	$	1,241
Total fair value of stock options vested		1,448		-		1,694

Cash received from stock option exercises for these plans for the fiscal year ended September 30, 2011 was $7.4 million. There were no actual tax benefits realized for the tax deductions from option exercise of awards to our independent contractor financial advisors for the fiscal year ended September 30, 2011.

Restricted stock plan

Under the 2005 Restricted Stock Plan we may grant restricted shares of common stock or restricted stock units to employees and independent contractor financial advisors. We issue new shares under this plan as it was approved by shareholders. During the three months ended December 31, 2010, our Board of Directors approved the granting of restricted stock unit awards rather than restricted stock awards in connection with the 2005 Restricted Stock Plan after reviewing certain income tax consequences to retirement eligible participants associated with the restricted stock awards. Our intention is to issue restricted stock units rather than restricted stock awards under this plan in the future. Under the plan the awards are generally restricted for a five year period, during which time the awards are forfeitable in the event the independent contractor financial advisors are no longer associated with us, other than for death, disability or retirement. The following activity for our independent contractor financial advisors occurred during the fiscal year ended September 30, 2011:

	Shares/Units			Weighted- average reporting date fair value ($)

Non-vested at October 1, 2010		156,380		$	25.33
Granted		-
Vested		(1,550	)
Forfeited		(2,500	)
Non-vested at September 30, 2011		152,330		$	25.96

The weighted-average fair value of share and unit awards vested for this plan during the fiscal year ended September 30, 2011 was $31.91 per share. The weighted-average fair value of share and unit awards forfeited for this plan during the fiscal year ended September 30, 2011 was $29.98 per share.

Expense and income tax benefits related to our restricted stock plan available for grants to our independent contractor financial advisors are presented below:

	Year ended September 30,
	2011		2010		2009
	(in thousands)

Total share-based expense	$	923	$	858	$	378
Income tax benefits related to share-based expense		351		322		142

As of September 30, 2011, there was $1.1 million of total unrecognized pre-tax compensation cost, net of estimated forfeitures, related to unvested restricted stock granted to our independent contractor financial advisors based on an estimated fair value of $25.96 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately 1.97 years. The total fair value of share and unit awards vested under this plan during the years ended September 30, 2011, 2010 and 2009 was $49,000, $317,000 and $58,400, respectively.

Other compensation

We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors who meet certain production requirements. We have purchased and hold life insurance on employees, to earn a competitive rate of return for participants and to provide the source of funds available to satisfy our obligations under some of these plans. The contributions are made in amounts approved annually by management.