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FRANKLIN RESOURCES INC (BEN)·Q4 2025 Earnings Summary

Executive Summary

  • Adjusted EPS of $0.67 beat Wall Street consensus ($0.59*) and operating revenues of $2.34B beat ($2.18B*), driven by elevated performance fees ($177.9M) and higher average AUM; GAAP EPS was $0.21 amid a $200M Western Asset intangible impairment .
  • Adjusted operating margin expanded to 26.0% (from 23.7% in Q3), while operating margin compressed to 3.6% (from 7.5% in Q3) on non-cash impairment and higher GAAP expenses .
  • Management guided Q1 FY26 to a mid-37 bps effective fee rate (EFR), compensation and benefits ~$880M, IS&T ~$155M, occupancy ~$70M, G&A $190–$195M, and FY26 tax rate of 26–28%—framing FY26 adjusted expenses at or below FY25 with higher margin .
  • Strategic catalysts: strong alternatives momentum (FY26 fundraising target $25–$30B), scaling active ETFs and Canvas, tokenization leadership, and steps to stabilize Western; near-term narrative hinges on fee-rate stability versus mix shifts and Western outflows .

What Went Well and What Went Wrong

What Went Well

  • Elevated performance fees ($177.9M) and higher average AUM lifted adjusted operating income to $472.4M and adjusted EPS to $0.67; adjusted margin rose to 26.0% .
  • CEO emphasized diversification and secular growth vectors: “record growth in retail SMAs, ETFs and Canvas®,” and alternative AUM reached a record $270B after closing Apera and fundraising $26.2B FY-to-date .
  • Strong pipeline: won-but-unfunded institutional mandates at $20.4B; ex-Western, eighth consecutive quarter of positive long-term net inflows (Q4: +$11.4B ex-Western) .

What Went Wrong

  • Western Asset continues to weigh on flows (Q4 long-term net outflows $23.3B at Western; FY Western outflows $141.9B) and GAAP earnings (non-cash $200M impairment) .
  • GAAP operating margin compressed to 3.6% (from 7.5% in Q3), reflecting impairment and higher GAAP expenses despite improved adjusted profitability .
  • Fixed income net outflows remain a headwind; despite multi-asset and alternatives net inflows, firm-level long-term net outflows were $11.9B in Q4 .

Financial Results

MetricQ2 2025Q3 2025Q4 2025
Operating Revenues ($USD Billions)$2.111 $2.064 $2.344
GAAP Diluted EPS ($USD)$0.26 $0.15 $0.21
Adjusted Diluted EPS ($USD)$0.47 $0.49 $0.67
Operating Margin %6.9% 7.5% 3.6%
Adjusted Operating Margin %23.4% 23.7% 26.0%
AUM by Asset Class ($USD Billions)Sep 2024Jun 2025Sep 2025
Equity$632.1 $656.6 $686.2
Fixed Income$556.4 $441.7 $438.7
Alternative$249.9 $258.4 $263.9
Multi-Asset$176.2 $183.2 $193.9
Cash Management$64.0 $71.9 $78.5
Total Ending AUM$1,678.6 $1,611.8 $1,661.2
Average AUM (Quarter)$1,667.5 $1,565.2 $1,633.7
KPIsQ2 2025Q3 2025Q4 2025
Long-Term Net Flows ($USD Billions)-26.2 -9.3 -11.9
Cash Management Net Flows ($USD Billions)+2.7 +2.7 +7.2
Net Market Change, Distributions & Other ($USD Billions)-11.6 +78.0 +54.1
Adjusted Performance Fees ($USD Millions)—$58.5 $177.9
Adjusted Effective Fee Rate (bps, excl. perf. fees)—37.5 37.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Fee Rate (EFR)Q1 FY26Mid-37 bps (stable) Mid-37 bps Maintained
Compensation & BenefitsQ1 FY26N/A~$880M New detail
IS&TQ1 FY26~$155M (prior quarter) ~$155M Maintained
OccupancyQ1 FY26~$70M (prior quarter) ~$70M Maintained
G&AQ1 FY26$190–$195M (previous guide levels) $190–$195M Maintained
Tax RateFY26N/A26–28% New range
FY26 Adjusted Expenses vs FY25FY26N/AAt or below FY25; higher margin New framework

Earnings Call Themes & Trends

TopicQ2 2025 (Prior-2)Q3 2025 (Prior-1)Q4 2025 (Current)Trend
Alternatives fundraising$6.8B in quarter; private markets $6.1B; launched Lexington perpetual funds ($2B) $6.2B in quarter; private markets $5.3B FY26 target $25–$30B; Lexington flagship first close 1H’26; infrastructure partnerships (Actis, DigitalBridge, CIP) Accelerating
Active ETFs14th consecutive inflow quarter; $4.1B inflows 15th consecutive inflow quarter; $4.3B inflows; AUM $44.1B ~$50B AUM; 42% active ETF share; >50% of flows Scaling rapidly
Canvas / SMAsCanvas AUM +20% QoQ; retail SMAs strong Continued inflows; Canvas/SMAs growth Canvas more than tripled since 2023; 1,100+ advisors; SMAs $165B Strong adoption
Digital/tokenizationLimited references in releaseLimited references in releaseOnly global asset manager with native on-chain mutual fund tokenization; Binance partnership; intraday yield payout capability Strategic differentiation
Western AssetIntegration of select functions; significant outflows Outflows continue; Q3 Western long-term outflows $17.1B Q4 Western outflows $23.3B; $200M impairment; performance rebound noted Still a headwind
Fee Rate (EFR)—37.5 bps (ex perf fees) Mid-37 bps guide; temporary upside with flagship alt raises Stable with episodic upside

Management Commentary

  • “Momentum continued in the fourth quarter… Long-term inflows increased across every asset class to $84.6 billion… Excluding Western Asset Management, we had $11.4 billion in net inflows, our eighth consecutive quarter of positive flows” — Jenny Johnson, CEO .
  • “Our adjusted operating revenues increased by 13.9%… adjusted performance fees were $177.9 million… adjusted effective fee rate… 37.5 bps” — Matt Nicholls, Co-President, CFO & COO .
  • “Today, Franklin Templeton stands as the only global asset manager delivering native on-chain mutual fund tokenization… we calculate the yield every second and pay it… daily, 365 days a year” — Jenny Johnson .

Q&A Highlights

  • Alternatives fundraising: FY26 target $25–$30B; Lexington could be ~half; broad contributions from Clarion, BSP, Alcentra, venture .
  • Infrastructure: Partnerships with DigitalBridge, Actis, Copenhagen Infrastructure Partners to deliver wealth-channel solutions; focus on income-oriented assets .
  • Fee rate dynamics: Stable mid-37 bps with temporary increases tied to flagship alt fundraises; Putnam’s ~34 bps offsets higher-fee alts .
  • Shareholder servicing fees: Sequential jump largely seasonal and TA outsourcing arrangements; expected to normalize .
  • Credit quality: No systemic deterioration; BSP exposure to a problem credit was “very teeny”; APERA expands direct lending in Europe’s lower middle market .

Estimates Context

  • Q4 2025: Adjusted EPS $0.67 vs $0.59* — beat; Operating revenues $2.34B vs $2.18B* — beat .
  • Q3 2025: Adjusted EPS $0.49 vs $0.50* — slight miss; Operating revenues $2.06B vs $2.09B* — slight miss .
  • Q2 2025: Adjusted EPS $0.47 vs $0.47* — inline; Operating revenues $2.11B vs $2.44B* — miss (consensus too high amid mix and performance fee cadence) .
MetricQ2 2025Q3 2025Q4 2025
Primary EPS Consensus Mean ($USD)0.47*0.50*0.59*
Adjusted Diluted EPS Actual ($USD)0.47 0.49 0.67
Revenue Consensus Mean ($USD Billions)2.441*2.087*2.178*
Operating Revenues Actual ($USD Billions)2.111 2.064 2.344

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Q4 delivered a double beat on adjusted EPS and revenues, propelled by higher performance fees and average AUM; adjusted margin expanded to 26.0% while GAAP margin reflected a non-cash Western impairment .
  • The fee-rate narrative is constructive: EFR stable at mid-37 bps, with episodic upside tied to flagship alternatives, offset by growing low-fee ETFs/Canvas/Putnam—net stability with near-term catalysts .
  • Alternatives are the growth engine (FY26 $25–$30B target), complemented by active ETF scale and Canvas/SMAs—supporting diversified organic growth .
  • Western remains the principal headwind on flows and GAAP; management is integrating select functions and highlighted performance rebound while absorbing the impairment charge .
  • FY26 setup: management targets at/below FY25 adjusted expenses and higher operating margin, with identified ~$200M gross efficiencies to fund growth and APERA costs .
  • Tokenization and AI are strategic differentiators (Binance partnership; intraday yield payout capability), potentially opening new distribution and efficiency pathways .
  • Watch near-term: performance fee cadence, flagship alt fund timing (Lexington first close 1H’26), fee-rate mix shifts, and Western flow trajectory as key stock narrative drivers .