Management's discussion and analysis reviews our consolidated financial condition as of March 31, 2012 and 2011, the consolidated results of operations for the years ended March 31, 2012 and 2011 and, where appropriate, factors that may affect future financial performance. The discussion should be read in conjunction with the accompanying consolidated financial statements and related notes. Unless context requires otherwise, as used in this Management's Discussion and Analysis
(i) the "current period" means the fiscal year ended March 31, 2012, (ii) the "prior period" means the fiscal year ended March 31, 2011, (iii) an increase or decrease compares the current period to the prior period, and (iv) all non-comparative amounts refer to the current period.

Forward-Looking Statements

The statements, analyses, and other information contained herein relating to trends in our operations and financial results, the markets for our products, the future development of our business, and the contingencies and uncertainties to

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

which we may be subject, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," and other similar expressions, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such statements are made based upon management's current expectations and beliefs concerning future events and their effects on the Company. Our actual results may differ materially from the results anticipated in these forward-looking statements.

These forward-looking statements are subject to risks and uncertainties including, but not limited to, those described and discussed in this report and other documents filed by the Company with the United States Securities and Exchange Commission (the "SEC"). We specifically disclaim any obligation to update or revise any forward-looking information, whether as a result of new information, future developments, or otherwise.

Overview

We are a financial services holding company that, through our subsidiaries, provides brokerage, investment advisory, insurance and related services. We operate in a highly regulated and competitive industry that is influenced by numerous external factors such as economic conditions, marketplace liquidity and volatility, monetary policy, global and national political events, regulatory developments, competition and investor preferences. Our revenues and net earnings may be either enhanced or diminished from period to period by these and other external factors.

OUR BUSINESS

We operate primarily through our subsidiary, ICC, as a broker-dealer and, doing business as ICA, as a registered investment advisor, with a national network of independent financial representatives.

Broker-Dealer Services

We provide broker-dealer services in support of trading and investment by our representatives' customers in securities, including corporate equity and debt securities, U.S. Government securities, municipal securities, mutual funds, limited partnerships and other alternative investments, variable annuities and variable life insurance. We also provide related services such as market information, Internet brokerage, portfolio tracking facilities and records management.

Investment Advisory Services

We provide investment advisory services, including asset allocation and portfolio rebalancing, for our representative's customers through ICA.

Recruitment and Support of Representatives

A key component of our business strategy is to recruit well-established, productive representatives who provide superior service to their clients. Additionally, we assist our representatives in developing and expanding their business by providing a variety of support services and a diversified range of investment products for their clients. We focus on providing substantial added value to our representatives' practices, enabling them to be more productive.

Support provided to assist representatives in pursuing consistent, profitable sales growth takes many forms, including automated trading systems and other technology solutions, targeted financial assistance and a network of communication links with investment product companies. Regional and national conventions provide forums for interaction to improve product knowledge, sales and client satisfaction. In addition, we provide our representatives with programs and tools to grow their businesses both through new client acquisition and advancement of existing client relationships. These programs enhance our ability to attract and retain productive representatives.

OUR PROCESS

Online Brokerage

Registered representatives have direct market access to submit security transactions for their clients through the use of an online brokerage platform for trade execution serviced by Pershing LLC acting as our clearing firm.

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Check and Application

Check and application revenue is obtained through a process where a check and a product application is delivered to us for processing that includes principal review and submission to the variable annuity, mutual fund, direct participation or other investment product company. Investments in technology are facilitating our migration over time from a paper intensive to a more paperless process. This shortens the transaction cycle, reduces errors and creates greater efficiencies.

Bond Brokerage

Our fixed-income brokerage desk uses a network of regional and primary dealers to execute trades across a broad array of fixed income asset classes. The desk also utilizes dealer-only electronic services that allow the desk to offer inventory and to execute trades. Our fixed income traders work with our representatives to develop portfolios for clients.

Asset Allocation

Asset allocation services are made available through ICA. Our services include the design, selection and rebalancing of investment portfolios on behalf of our representatives' clients. We also provide tools, services and guidance that enable our representatives to provide these investment services directly to their clients. These services, for the most part, are conducted through our online brokerage platform. Other allocation services are performed directly by fund companies.

Critical Accounting Policies

In General

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company believes that of its significant accounting policies (detailed in Footnote 2 - Summary of Significant Accounts Policies to the Company's Consolidated Financial Statements contained herein), those dealing with valuation of securities and other assets, revenue recognition and allowance for doubtful accounts receivable involve a particularly high degree of judgment and complexity. Our accounting policies require estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts can and do differ from estimates and the difference can have a material effect on the consolidated financial statements. Therefore, understanding these policies is important to understanding the reported results of operations and the financial position of the Company.

Off-Balance Sheet Risk

We execute securities transactions on behalf of our customers. If either the customer or counter-party fails to perform, we, by agreement with our clearing broker, may be required to discharge the obligations of the non-performing party. In such circumstances, we may sustain a loss if the market value of the security is different from the contract value of the transaction. We seek to control off-balance sheet risk by monitoring the market value of securities held or given as collateral in compliance with regulatory and internal guidelines. Pursuant to such guidelines, our clearing firm requires that we reduce positions when necessary. We also complete credit evaluations where there is thought to be credit risk.

Reserves

We record reserves related to legal proceedings in "accrued expenses" in the consolidated balance sheet. The determination of these reserve amounts requires significant judgment on the part of management. We consider many factors including, but not limited to: the amount of the claim; the amount of the loss in the client's account; the basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees or representatives; previous results in similar cases; and legal precedents. Each legal proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management. Any change in the reserve amount is recorded in the consolidated financial statements and is recognized as a charge or credit to earnings in that period. The assumptions made by management in determining the estimates of reserves may be incorrect and the actual costs upon disposition of a legal proceeding may be greater or less than the reserved amount.

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Risk Management

Risk is an inherent part of our business and activities. Risk management is critical to our financial strength and profitability and requires robust auditing, constant communications, sound judgment and knowledge of financial regulations, trends and the economy as a whole. We take a holistic approach to governance, risk management and compliance.

Management and staff, at all levels, take a proactive role in the risk management process. The principal risks involved in our business activities include market, operational, regulatory and legal risks.

Market Risk

Market risk is the risk attributable to common macroeconomic factors such as gross domestic product, employment, inflation, interest rates, budget deficits and consumer sentiment. Consumer and producer sentiment is critical to our business. The level of consumer confidence determines their willingness to spend, especially in the financial markets. It is the willingness to spend in the financial markets that is key to our business. A shift in spending in this area, often caused by market volatility, could negatively impact us. In addition, declines in market values negatively impact investment advisory revenues that are based upon the value of assets under management. We constantly monitor these economic trends in order to enhance and broaden our product line to mitigate potential negative impact of such trends.

Operational Risk

Operational risk refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes. Managing these risks is critical, especially in a rapidly changing environment with increasing transaction volume. Failure to manage these risks could result in material financial loss to the Company. To mitigate these risks, the Company has developed policies and procedures designed to identify and manage operational risk. These policies and procedures are reviewed and updated on a continuing basis by a broad-based Risk Committee that meets weekly to ensure that risk is minimized.

Regulatory and Legal Risk

Regulatory and legal risk includes non-compliance with applicable legal and regulatory requirements and the risk of customer claims that could result in adverse judgments against us. We are subject to extensive regulation in the various jurisdictions in which we operate. We maintain a panoply of procedures to address issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer information and funds, the granting of credit, collection activities, money-laundering and record keeping. However, compliance procedures, no matter how stringent and comprehensive, can only limit, but not completely prevent, the institution of regulatory and legal proceedings, the institution, outcomes and consequences of which often cannot be reasonably foreseen or quantified in advance.

In the normal course of business, we continue to be the subject of numerous civil actions and arbitrations arising out of customer complaints concerning our activities as a broker-dealer, investment advisor, employer or otherwise. As experienced generally in the industry today, the volume of such complaints has generally trended upward over time, particularly in conjunction with market losses incurred by customers during the most recent financial downturn.

Effects of Inflation

Our assets primarily are liquid in nature and not significantly affected by inflation. Management believes that the replacement cost of property and equipment will not materially affect operating results. However, the rate of inflation can affect our expenses, including, without limitation, employee compensation and benefits, communications and occupancy, which may not be readily recoverable through charges for services provided.

KEY INDICATORS OF FINANCIAL PERFORMANCE

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

We periodically review and analyze our financial performance across a number of measurable factors considered to be particularly useful in understanding and managing our business. Key metrics in this process include productivity and practice diversification of representatives, top line commission and advisory services revenues, operating expenses, legal costs, taxes, earnings per share and adjusted EBITDA (as defined below).

PRODUCTIVITY AND PRACTICE DIVERSIFICATION OF REPRESENTATIVES

Management believes that continual improvement in the overall quality of our independent representatives is a key to achieving growth in revenues and earnings. We believe that upgrading the business practices of our representatives not only grows revenue, but assists in limiting the cost of overhead functions and representative noncompliance. We strive to continually improve the overall quality of our force of representatives by:

· assisting representatives to improve their skills and practices,

· recruiting established, high-quality representatives, and

· terminating low-quality representatives.

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Productivity

A key metric that we use to assess the average quality of our producing (non-staff) representatives is per capita rep-generated revenue based on a 12-month period. Data for the 12-month periods ended March 31, 2012 and 2011 are presented below:

                                    Year Ended                         Change
                         March 31, 2012    March 31, 2011       Dollar       Percentage
Rep-generated
revenue:
 Commission           $     63,444,938  $     68,111,786  $   (4,666,848)      -6.9%
 Advisory                   15,958,497        14,977,601         980,896        6.5%
 Other fee income              620,595           802,752        (182,157)      -22.7%
                      $     80,024,030  $     83,892,139  $   (3,868,109)      -4.6%

Number of
representatives               455               519                  (64)      -12.3%

Average revenue per
representative        $     175,877     $     161,642     $       14,235        8.8%

We believe that the 8.8% increase in per capita rep-generated revenue reflects recruitment and retention of higher producing representatives, as well as culling of part-time lower producing representatives. The Company is focused on driving revenue growth through recruitment and organic growth from existing representatives.

Practice Diversification

We encourage diversification in the investments products and services recommended or selected by our independent representatives for their clients through recruitment, education and training. This enables our representatives to more fully serve the investment and security needs of their clients, particularly in volatile markets. We believe that representatives who offer diversified investment products and sophisticated services to their clients will generate transaction and fee-based business and recurring revenues that will help us weather volatile and down markets.

The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report.

RESULTS OF OPERATIONS

                                                  Year Ended March 31,                            Change
                                             2012                    2011                  Dollar          Percentage
Revenues:
 Commission                          $         63,444,938    $         68,111,786    $       (4,666,848)     -6.9%
 Advisory fees                                 15,958,497              14,977,601               980,896       6.5%
 Other fee income                                 620,595                 802,752              (182,157)     -22.7%
 Other income                                   1,016,732               1,361,826              (345,094)     -25.3%
Total revenue                                  81,040,762              85,253,965            (4,213,203)     -4.9%

Expenses:
 Commissions and advisory fees
expense                                        64,775,584              67,125,324            (2,349,740)     -3.5%
 Compensation and benefits                      8,744,917               8,471,493               273,424       3.2%
 Regulatory, legal and professional             3,979,808               3,983,401                (3,593)     -0.1%
 Brokerage, clearing and exchange
fees                                            1,790,263               2,046,543              (256,280)     -12.5%
 Technology and communications                  1,335,373               1,225,670               109,703       9.0%
 Marketing and promotion                          956,234               1,383,453              (427,219)     -30.9%
 Occupancy and equipment                          864,431                 914,952               (50,521)     -5.5%
 Other administrative                           1,219,856               1,101,691               118,165      10.7%
 Interest                                          37,361                  23,698                13,663      57.7%
Total expenses                                 83,703,827              86,276,225            (2,572,398)     -3.0%

Operating loss                                 (2,663,065)             (1,022,260)           (1,640,805)     160.5%
Benefit for income taxes                         (331,236)               (112,130)             (219,106)     195.4%

Net loss                             $         (2,331,829)    $          (910,130)           (1,421,699)     156.2%

Adjusted EBITDA:                      $          (776,780)    $          (242,218)   $         (534,562)     220.7%

Adjustments to conform adjusted
EBITDA to GAAP Net loss:
 Income tax benefit                               331,236                 112,130               219,106      195.4%
 Interest expense                                 (37,361)                (23,698)              (13,663)     57.7%
 Depreciation and amortization                   (380,139)               (420,409)               40,270      -9.6%
 Non-cash compensation                           (147,040)               (183,743)               36,703      -20.0%
 Non-cash compensation for transfer
of beneficial interest to former
chairman                                         (568,095)                       -             (568,095)       NA
 Non-recurring professional fees                 (753,650)               (152,192)             (601,458)     395.2%

Net loss                             $         (2,331,829)    $          (910,130)   $       (1,421,699)     156.2%

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted by eliminating other non-cash expense such as stock-related compensation, gains or losses on sales of assets, and various non-recurring items such as material expenses incurred in connection with a secondary stock offering that closed on August 2, 2011 ("adjusted EBITDA"), is a key metric we use in evaluating our financial performance. We consider adjusted EBITDA important in monitoring and evaluating our financial performance on a consistent basis across multiple time periods. We also use adjusted EBITDA as an important measure, among others, to analyze and evaluate financial and strategic planning decisions.

Adjusted EBITDA is considered a non-US GAAP financial measure as defined by Regulation G promulgated by the SEC under the Securities Act. Adjusted EBITDA should be considered in conjunction with, rather than as a substitute for, important US GAAP financial measures including pre-tax income, net income and cash flows from operating activities.

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Items excluded from adjusted EBITDA are significant and necessary components to the operations of our business; therefore, adjusted EBITDA should only be used as a supplemental measure of our operating performance.

Our EBITDA, as adjusted, decreased by $0.54 million in 2012 compared to 2011 as a result of an increase in net loss in 2012 as compared to 2011.

Revenues

A 4.9 % decrease in revenues principally reflects a $4.7 million decline in commissions offset by a $1.0 million growth in advisory fees driven by market growth and increased activity of our representatives.

The decrease in commission revenue primarily resulted from a decline in total transactions processed through our trade desk. This decline in brokerage activity was mostly attributed to a stock market that has been trading flat with no consistency in volume and price increases. Trading has slowed due to prolonged economic uncertainty, the ongoing debt crisis in Europe, and the recession.

There was also a decline in revenues from variable annuities and direct participation programs as new contributions from investors decreased.

Commission Revenue:                                 Fiscal Year Ended
                                                        March 31,                       Dollar             Percentage
                                                  2012            2011                  Change               change
Commission Revenue:
 Variable Annuities                          $    27,391,570 $    28,668,847       $     (1,277,277)            -4.5%
 Brokerage(1)                                    25,448,132      28,180,449              (2,732,317)            -9.7%
 Direct Mutual Funds Sales                        6,199,413       5,565,475                 633,938            11.4%
 Direct Participation Programs                    4,349,839       5,605,362              (1,255,523)           -22.4%
 Other                                               55,984          91,653                 (35,669)           -38.9%

Total Commission Revenue                     $    63,444,938 $    68,111,786       $     (4,666,848)            -6.9%

1. Revenue designated as Brokerage includes
revenue from mutual funds sold through our
trading platform.

Revenues from advisory fees increased due to asset values growth complimented by an increase in investment contributions. Our advisor-directed managed assets program, A-MAP, where investment advisory services are provided directly by our independent representatives, continues to be the largest portion of our advisory services revenue.

Other fee income, primarily comprised of licensing and annual administrative fees, as well as financial planning fees, decreased due to a significant decrease in our net proceeds collected from our representatives for errors and omissions insurance.

The decrease in other revenue, which consists of net marketing revenues and interest income, resulted primarily from the decline in marketing allowances earned from product sponsor programs. The decline was the result of reduced sales volumes of alternative investment products.

Expenses

Total expenses decreased by $2.6 million, or 3.0%, mostly as a result of decreases in commissions and advisory fees paid to our representatives, marketing and promotion, and regulatory, legal and professional fees. Offsetting these decreases was an increase in compensation and benefits.

Investors Capital Holdings, Ltd. Annual Report on Form 10-K Fiscal Year Ended March 31, 2012

Commissions and advisory fees paid to our representatives typically are calculated as percentages of revenue generated by them; accordingly, much of the $2.4 million decrease in commissions and advisor fees reflects a corresponding decrease in commission and advisory fee revenue.

The decline in marketing and promotion expenses can be attributed to a decrease in advertising in brokerage industry periodicals.

Regulatory, legal and professional expenses were relatively flat comparatively, however there was a decrease in regulatory fines that had impacted the Company in the prior year. The Company incurred material legal and professional fees of $0.8 million specifically related to the S-3 registration for the sale of shares held by our former Chairman and majority stockholder.

We will continue to incur legal fees and settlement costs as we operate in a litigious, regulated industry. In addition, from time to time regulatory agencies and self-regulatory organizations institute investigations into industry or firm practices that also may result in the imposition of financial or other sanctions. We invest significant resources to mitigate litigation and regulatory exposure by promoting sound operational procedures, on-going surveillance processes and obtaining comprehensive insurance coverage.

. . .