10-K: Franklin Resources Navigates Market Shifts, Reports Mixed FY25 Results

Franklin Resources reports a 1% decrease in AUM to $1.66 trillion for fiscal year 2025, with a 13% rise in net income despite significant fixed income outflows.

Summary

• Total Assets Under Management (AUM) decreased by 1% to $1,661.2 billion at September 30, 2025, from $1,678.6 billion at September 30, 2024.
• Average AUM increased by 3% during fiscal year 2025 to $1,606.7 billion.
• Operating revenues increased by 3% to $8,770.7 million in fiscal year 2025, compared to $8,478.0 million in fiscal year 2024.
• Operating income surged by 48% to $604.1 million in fiscal year 2025, up from $407.6 million in the prior year.
• Net income attributable to Franklin Resources, Inc. rose by 13% to $524.9 million in fiscal year 2025, from $464.8 million in fiscal year 2024.
• Diluted earnings per share increased by 7% to $0.91 in fiscal year 2025, compared to $0.85 in fiscal year 2024.
• The company experienced long-term net outflows of $97.4 billion, including $141.9 billion from Western Asset Management (WAM).
• Market appreciation contributed $125.8 billion to AUM during the fiscal year.
• An impairment charge of $200.0 million was recognized for an indefinite-lived intangible asset related to WAM management contracts in fiscal year 2025.
• The effective income tax rate increased to 30.2% in fiscal year 2025 from 26.2% in fiscal year 2024.
• The global workforce decreased to approximately 9,800 employees from 10,200 at September 30, 2024.
• The company acquired Apera Asset Management on October 1, 2025, for $65.2 million cash, with potential additional payments of up to $125.0 million based on revenue targets.

Sentiment

Score: 5

Explanation: While net income and operating income showed growth, the overall AUM decline driven by significant outflows, particularly from a key segment (WAM), and substantial intangible asset impairments, indicate underlying challenges. The positive market appreciation was largely offset by these outflows. The ongoing legal issues and regulatory complexities also add a layer of uncertainty.

Positives

• Operating revenues increased 3% to $8,770.7 million in fiscal year 2025.
• Operating income surged 48% to $604.1 million in fiscal year 2025.
• Net income attributable to Franklin Resources, Inc. rose 13% to $524.9 million.
• Diluted earnings per share increased 7% to $0.91.
• Average AUM increased 3% during fiscal year 2025 to $1,606.7 billion.
• Equity AUM increased 9% to $686.2 billion, and Multi-Asset AUM increased 10% to $193.9 billion at September 30, 2025.
• Cash Management AUM increased 23% to $78.5 billion at September 30, 2025.
• Long-term inflows increased 8% to $343.9 billion, driven by higher inflows across equity, fixed income, and alternative strategies.
• Market appreciation contributed $125.8 billion to AUM.
• Successfully acquired Apera Asset Management on October 1, 2025, expanding alternative capabilities.
• Mutual fund performance showed 60% of Equity AUM and 53% of Fixed Income AUM in the top two peer group quartiles for the 1-year period.
• Strategy composite performance indicated 68% of Fixed Income AUM and 37% of Equity AUM exceeding their benchmarks for the 1-year period.
• Repaid $400.0 million senior notes due March 2025 and $300.0 million borrowings from the revolving credit facility.
• The Board authorized the repurchase of up to an additional 27.2 million shares in December 2023, with 19.2 million shares remaining available at September 30, 2025.

Negatives

• Total AUM decreased 1% to $1,661.2 billion at September 30, 2025.
• Long-term net outflows totaled $97.4 billion, significantly impacted by $141.9 billion of long-term net outflows at Western Asset Management (WAM).
• Fixed Income AUM decreased 21% to $438.7 billion at September 30, 2025.
• An impairment of indefinite-lived intangible asset related to WAM management contracts of $200.0 million was recognized in fiscal year 2025, following a $389.2 million impairment in fiscal year 2024.
• The effective income tax rate increased to 30.2% in fiscal year 2025 from 26.2% in fiscal year 2024.
• Investment and other income, net decreased 46% to $212.8 million in fiscal year 2025.
• Net losses on investments of $37.6 million were incurred in fiscal year 2025, compared to net gains of $57.6 million in the prior year.
• Income from investments in equity method investees decreased 43% to $78.0 million.
• Foreign currency exchange losses, net, amounted to $11.6 million.
• The global workforce decreased by approximately 400 employees to 9,800.
• Ongoing legal proceedings and investigations related to India Credit Fund Closure Matters and Western Asset Management (WAM) trade allocations continue.
• A new class action lawsuit was filed against Franklin and the Franklin Templeton 401(k) Retirement Plan Committee by former employees.

Risks

• Volatility and disruption of business and financial markets and adverse changes in the global economy may significantly affect results of operations and put pressure on financial results.
• Declines in global economic markets may result in significant decreases in AUM, revenues, and income.
• The company may need to modify its business, strategies, or operations and may be subject to additional constraints or costs to compete in a changing global economy and business environment.
• Individual financial, equity, debt, and commodity markets may be adversely affected by financial, economic, operational, political, electoral, diplomatic, or other changes and/or instabilities, including local acts of terrorism, economic crises, political protests, war, or other business, social, or political crises.
• Global economic conditions, exacerbated by war, terrorism, social, civil or political unrest, natural disasters, public health crises, or financial crises, affect the mix, market values, and levels of AUM.
• Changing market conditions could cause an impairment to the value of goodwill and other intangible assets.
• Fluctuations in the amount and mix of AUM are subject to market conditions outside of the company's control and can negatively impact revenues and income.
• A shift in asset mix toward lower-fee products, such as fixed income products and ETFs, and away from higher-fee equity and alternative products, may cause a related decline in revenues and income.
• Increases in interest rates, particularly if rapid, may negatively impact fixed income products and decrease the total return on bond investments.
• Funds may be subject to liquidity risks or an unanticipated large number of redemptions and fund closures, potentially requiring the sale of securities at a loss or drawing on credit lines.
• Poor investment performance of products could reduce the level of AUM or affect sales, and negatively impact revenues and income.
• Past or present investment performance in products is not indicative of future performance.
• Failure to successfully and promptly address the underlying causes of poor investment performance could negatively affect future business prospects.
• Harm to the company's reputation may negatively impact revenues and income, leading to client reductions/withdrawals, termination of management agreements, and inability to attract new clients.
• Business and operations are subject to adverse effects from the outbreak and spread of contagious diseases.
• Strategic transactions, including acquisitions, dispositions, consolidations, joint ventures, or similar transactions, could pose risks such as loss of clients, customers, or personnel, underperformance, failure to realize anticipated benefits, financial or other setbacks, increased leverage, or dilution of existing stockholders.
• Joint ventures or minority stakes in companies where the company typically does not have control may involve risks if controlling stakeholders or partners have inconsistent business interests, strategies, or goals.
• Business operations are complex, and a failure to perform operational tasks properly or comply with applicable regulatory requirements could have an adverse effect on revenues and income.
• Any misrepresentation of services and products in advertising materials, public relations information, social media, or other external communications could adversely affect reputation and business prospects.
• Failure to establish adequate controls and risk management policies, or the circumvention of controls and policies, could have an adverse effect on global operations, reputation, and financial position due to fraudulent activity and dishonesty.
• Conducting operations and growing business in numerous countries involves risks and corresponding potential costs and expenses, including challenges to the adequacy of resources, procedures, and controls.
• Local regulatory environments may vary widely in terms of scope, adequacy, and sophistication, and local distributors may be inconsistent or less developed.
• Increased exchange rate and market-specific political, economic, or other risks from international markets may adversely impact revenues and income generated overseas.
• Emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from financial, economic, political, and diplomatic developments, currency fluctuations, and social instability.
• Failure to properly address the increased transformative pressures affecting the investment management industry, such as fee pressure, shifts to alternative/passive strategies, and increased client demands, could negatively impact the business.
• Strong competition from numerous and sometimes larger companies with competing offerings and products could limit or reduce sales of products, potentially resulting in a decline in market share, revenues, and income.
• Increasing competition and other changes in the third-party distribution and sales channels on which the company depends could reduce revenues and income and hinder growth.
• Any failure of third-party providers to fulfill their obligations, or the company's failure to maintain good relationships with its providers, could adversely impact the business.
• The company may be adversely affected if any of its third-party providers is subject to a successful cyber or security attack.
• The company's ability to manage and grow its business successfully can be impeded by systems and other technological limitations.
• Any significant limitation, failure, or security breach of information and cybersecurity infrastructure, software applications, technology, or other systems, or those of third-party providers, that are critical to operations could disrupt business and harm operations, financial condition, and reputation.
• The inability to recover successfully, should the company experience a disaster or other business continuity problem, could cause material financial loss, regulatory actions, legal liability, and/or reputational harm.
• Developing regulatory treatment of AI, and failure to adequately address AI-related challenges, creates a risk of reputational harm and an impediment to growth.
• The company depends on key personnel, and its financial performance could be negatively affected by the loss of their services.
• The company's ability to meet cash needs depends upon certain factors, including the market value of its assets, its operating cash flows, and its perceived creditworthiness.
• The company is dependent on the earnings of its subsidiaries, and its cash flow and ability to fund operations are dependent upon the distribution of earnings, loans, or other payments by its subsidiaries.
• The company is subject to extensive, complex, overlapping, and frequently changing rules, regulations, policies, and legal interpretations, creating uncertainty in the regulatory and compliance environments.
• Failure to comply with the laws, rules, or regulations in any of the jurisdictions in which the company operates could result in substantial harm to its reputation and results of operations.
• Changes in tax laws or exposure to additional income tax liabilities could have a material impact on financial condition, revenues, and income.
• Regulatory and governmental examinations and/or investigations, litigation, and the legal risks associated with the business, could adversely impact AUM, increase costs, and negatively impact profitability and/or future financial results.
• Contractual obligations may subject the company to indemnification costs and liability to third parties.
• Failure to protect intellectual property may negatively impact the business.

Future Outlook

The global business and regulatory environments are expected to remain complex, uncertain, and subject to change, with ongoing uncertainties regarding the global economy. The company will continue to focus on investment performance, high-quality client service, expense management, talent attraction/retention, and strategic investments in technology. It plans to protect and enhance its brand recognition and maintain strong relationships with broker-dealers and clients. The company expects to continue paying comparable regular quarterly dividends and repurchasing shares opportunistically, while prioritizing investment in its business, including seed capital and resources for investment teams and operations. The 'One Big Beautiful Bill Act' is not expected to have a material impact on financial statements. The company will adopt new FASB accounting guidance for income taxes and crypto assets in fiscal year 2026, and is evaluating the impact of future guidance on expense disaggregation and internal-use software. Regulatory reviews and potential changes in areas like SFDR, CSDD, CSRD, and MiFID II inducements rules are anticipated to continue impacting the industry.

Management Comments

• Our mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions.
• We believe, despite market risks, that we have a competitive advantage as a result of the economic and geographic diversity of our products available to our clients.
• We are committed to delivering strong investment performance for our clients, and to offering a broad range of strategies and drawing on our diverse experiences and perspectives gained through our long history in the investment management business.
• We know that success demands smart and effective business innovation, solutions and technologies, and we remain focused on investment excellence, innovating to meet evolving client goals, and building strong partnerships by delivering superior client service.
• We continue to focus on the long-term investment performance of our investment products and on providing high quality service to our clients.
• The global business and regulatory environments in which we operate remain complex, uncertain and subject to change.
• As we continue to confront the challenges of the current economic and regulatory environments, we remain focused on the investment performance of our products and on providing high quality service to our clients.
• We continuously perform reviews of our business model. While we remain focused on expense management, we will also seek to attract, retain and develop personnel and invest strategically in systems and technology that will provide a secure and stable environment.
• We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships.
• Management believes the claims made in the lawsuits (WAM and 401(k) litigation) are without merit and the Company intends to defend against them vigorously.
• The Company strongly believes that the decision taken by FTTS to wind up the Funds (India Credit Fund Closure Matters) was in the best interests of unitholders and allowed for the orderly liquidation and distribution of Fund assets.

Industry Context

The financial services industry is characterized by intense global competition, ongoing disruption, and evolving challenges. These include persistent fee pressure, a notable shift from actively managed core equity and fixed income strategies towards alternative, passive, and smart beta solutions, and increasing demands from clients and distributors for enhanced engagement and services. Industry consolidation is creating stronger competitors with greater financial resources and broader distribution channels. The regulatory landscape is becoming increasingly complex, with heightened scrutiny across various aspects of investment management, including transparency, inducements, conflicts of interest, capital, liquidity, and operational risk. Technological advancements, particularly in digital wealth and distribution tools and the emergence of digital asset markets, are transforming client interactions and investment opportunities, albeit with significant volatility and regulatory uncertainty. Competition for skilled personnel remains fierce, and global/local laws restricting compensation could impact the ability to attract top talent.

Comparison to Industry Standards

• The company compares its mutual fund performance against Morningstar peer group medians, with 60% of Equity AUM and 53% of Fixed Income AUM in the top two quartiles for the 1-year period.
• Strategy composite performance is measured against market benchmarks, showing 37% of Equity AUM and 68% of Fixed Income AUM exceeding their benchmarks for the 1-year period.
• The company states that its fees and expenses are routinely benchmarked against applicable industry standards.
• The company believes it is one of the more widely diversified investment managers based in the U.S., indicating a competitive position in terms of product breadth and global presence.

Management Changes

Corporate Governance

Legal Proceedings

• **India Credit Fund Closure Matters:** Franklin Templeton Trustee Services Private Limited (FTTS) decided to wind up six fixed income mutual fund schemes in India on April 24, 2020, leading to legal petitions from unitholders alleging violations and mismanagement. The Supreme Court of India confirmed the winding up in February 2021, and approximately $3.3 billion was distributed to unitholders by September 2023. SEBI initiated regulatory proceedings in late 2020, imposing aggregate monetary penalties of approximately $2.4 million and disgorgement of $61.7 million (plus 12% interest) in June 2021, along with a two-year prohibition on launching new fixed income funds. Appeals are pending, and related inquiries by other Indian governmental agencies are ongoing. The company maintains meritorious defenses.
• **Western Asset Management (WAM) Investigations and Litigation:** The company is subject to ongoing parallel investigations by the SEC and the U.S. Department of Justice (DOJ) regarding certain trade allocations of treasury derivatives in select WAM managed accounts. The CFTC closed its investigation on June 30, 2025. Ken Leech, former co-Chief Investment Officer of WAM, received a Wells Notice from the SEC in August 2024, retired, and was subsequently named as a defendant in a SEC complaint and DOJ indictment on November 25, 2024. On July 3, 2025, Franklin, WAM, and Ken Leech were named as defendants in a class action lawsuit by the Western PA Electrical Employees Insurance Trust Fund, seeking damages for alleged Securities Exchange Act of 1934 violations. The company believes these claims are without merit and intends to vigorously defend.
• **Franklin Templeton 401(k) Retirement Plan Litigation:** On July 22, 2025, Franklin and the Franklin Templeton 401(k) Retirement Plan Committee were named as defendants in a class action lawsuit by former employees. The plaintiffs allege breaches of fiduciary duties and failure to monitor Plan fiduciaries under ERISA, related to the Plan's inclusion of certain proprietary funds as investment options. Plaintiffs seek damages, disgorgement, removal of investments/fiduciaries, and attorneys' fees. The company believes these claims are without merit and intends to vigorously defend.
• The company is involved in other litigation in the normal course of business, and management believes the ultimate resolution of such claims will not materially affect the company's business, financial position, results of operations, or liquidity. An adequate accrual has been made for probable losses as of September 30, 2025.

Related Party Transactions

• A substantial amount of the company's operating revenues and receivables are from related parties, primarily sponsored funds and equity method investees.
• Substantially all dividend income was generated by investments in nonconsolidated sponsored funds.
• Investments in sponsored funds and separate accounts consist primarily of nonconsolidated sponsored funds.
• Investments related to long-term incentive plans primarily consist of investments in sponsored funds.
• Investments in equity method investees include sponsored funds.
• The company routinely makes cash investments in the course of launching sponsored funds, though it has no legal or contractual obligation to do so.

Stakeholder Impact

• **Shareholders:** Diluted EPS increased to $0.91. The company has an active stock repurchase program with 19.2 million shares available, and expects to continue paying comparable regular quarterly dividends. However, there is a risk of share price decline due to market volatility, poor performance, reputational harm, or legal/regulatory issues. Potential dilution from equity issuances for acquisitions is also a factor.
• **Employees/Consultants:** The workforce decreased by approximately 400 employees. Compensation and benefits expenses increased slightly, with higher incentive compensation. Employees are subject to restrictive covenants, confidentiality, non-solicit, and non-interference clauses. The company offers stock-based compensation plans and defined contribution plans. There is a risk of losing key personnel due to intense competition, and the company faces a lawsuit regarding its 401(k) Retirement Plan by former employees.
• **Clients/Customers/Investors:** The company aims to help clients achieve better outcomes through a broad product mix and global presence. However, clients face risks of reduced AUM and dissatisfaction due to poor investment performance, market volatility, or reputational harm. Clients are also impacted by evolving regulatory changes (e.g., Names Rule, fiduciary rule, digital assets). The India Credit Fund Closure Matters involved unitholders challenging decisions, though distributions ultimately exceeded initial AUM. The WAM investigations and litigation relate to trade allocations in managed accounts, potentially impacting client trust.
• **Regulators/Governmental Authorities:** The company is subject to extensive U.S. and non-U.S. regulation and faces ongoing investigations (SEC, DOJ for WAM; SEBI, Economic Offences Wing, Enforcement Directorate for India Funds). Compliance with new and evolving regulations (cybersecurity, sustainability, privacy, SIFIs, private fund adviser reforms, fund names rule, digital assets, tax compliance) imposes significant burdens and costs. Non-compliance could result in disciplinary actions, monetary damages, fines, penalties, and revocation of licenses.
• **Third-Party Providers/Intermediaries:** The company heavily depends on third-party distribution and sales channels and outsources various operational services. This creates a risk of service disruptions, quality issues, or cyber attacks affecting providers. Increased competition for access to distribution channels leads to higher costs, and regulatory changes affecting broker-dealers and financial intermediaries can impact these relationships.

Next Steps

• Continue to monitor developments regarding tax legislation and any significant impacts on the effective tax rate.
• Continue to monitor market conditions and their potential impact on assumptions used in annual impairment assessments.
• Evaluate the impact of the 'One Big Beautiful Bill Act' on consolidated financial statements.
• Implement additional disclosures for segment reporting as required by the FASB amendment adopted October 1, 2024.
• Elect the prospective approach for the FASB amendment on income taxes, including relevant disclosures in the FY26 10-K.
• Recognize a cumulative effective adjustment of approximately $26 million through retained earnings at adoption of the FASB crypto asset amendment on October 1, 2025.
• Evaluate the impact of the FASB new guidance on disaggregation of expenses (effective Oct 1, 2027).
• Evaluate the impact of the FASB amendment on internal-use software guidance (effective Oct 1, 2028).
• Prepare for the first annual disclosure for U.K. funds with sustainability characteristics by December 2025.
• Await further consultation from the U.K. Treasury regarding the application of FCA's Sustainability Disclosure Requirements to EU UCITS offered to U.K. retail investors.
• Continue to cooperate fully with SEC and DOJ investigations into Western Asset Management (WAM) trade allocations.
• Vigorously defend against the lawsuit filed by the Western PA Electrical Employees Insurance Trust Fund.
• Vigorously defend against the lawsuit filed by former employees regarding the Franklin Templeton 401(k) Retirement Plan.
• Continue to defend against claims in India Credit Fund Closure Matters.
• Make the remaining payment for the federal portion of the transition tax liability of $231.6 million in fiscal year 2026.
• Continue to assess and improve existing business continuity plans.
• Continue to focus on long-term investment performance and providing high-quality service to clients.
• Continue to review the business model, focus on expense management, attract, retain, and develop personnel, and invest strategically in systems and technology.
• Continue to protect and further brand recognition while developing and maintaining broker-dealer and client relationships.
• Continue paying comparable regular dividends quarterly.
• Continue repurchasing shares to offset dilution and opportunistically.
• Spend more post-dividend free cash flow investing in the business, including seed capital and acquiring resources.
• Pay up to $125.0 million in cash for Apera Asset Management acquisition through the fifth anniversary of the closing date based on achieving revenue targets.
• Pay up to $375.0 million related to Putnam acquisition between the third and seventh anniversaries of the closing date related to revenue growth targets.

Key Dates

Recommendation

The company shows resilience with increased operating and net income in fiscal year 2025, alongside a 3% rise in average AUM and strategic acquisitions like Apera Asset Management. However, the 1% decline in total AUM, driven by substantial long-term net outflows, particularly from Western Asset Management, and a significant intangible asset impairment related to WAM, signal underlying challenges in asset retention and specific business segments. The ongoing legal and regulatory investigations, including the WAM trading allegations and the 401(k) plan litigation, introduce considerable uncertainty and potential future liabilities. While the company is actively managing expenses and investing in technology, these headwinds, combined with an increasing effective tax rate, suggest a period of stabilization rather than strong growth. A 'Hold' recommendation reflects the mixed performance, the strategic efforts to adapt, and the unresolved legal and operational risks that temper immediate upside potential while acknowledging the company's established position and profitability.

Keywords

Asset Management, Investment Management, SEC Filing, 10-K, Financial Services, Franklin Resources, BEN, AUM, Restricted Stock Units, Corporate Governance, Risk Factors, Financial Performance, Equity, Fixed Income, Alternatives, Multi-Asset, Cash Management, Share Repurchase, Acquisitions, Legal Proceedings, Cybersecurity, Regulatory Compliance, ESG, Digital Assets, Executive Compensation