10-Q: Franklin Resources Reports Strong Q2 2026 Results

Franklin Resources, Inc. (BEN) announced its Q2 2026 financial results, showing significant year-over-year growth in net income and diluted EPS, driven by increased assets under management and improved investment performance.

Summary

• Franklin Resources, Inc. reported strong financial results for the second quarter and first six months of fiscal year 2026.
• Total operating revenues increased by 9% to $2,294.9 million for the three months ended March 31, 2026, and by 6% to $4,622.0 million for the six months ended March 31, 2026.
• Net income attributable to Franklin Resources, Inc. saw a substantial increase, rising 77% to $268.2 million for the quarter and 66% to $523.7 million for the six-month period.
• Diluted earnings per share (EPS) also showed significant improvement, up 88% to $0.49 for the quarter and 73% to $0.95 for the six-month period.
• Assets Under Management (AUM) grew to $1,682.1 billion as of March 31, 2026, a 9% increase compared to the prior year, driven by strong net inflows and market appreciation.
• The company completed the acquisition of Apera Asset Management on October 1, 2025, contributing to revenue and AUM growth.
• Operating expenses remained relatively flat for the six-month period, increasing only 0% to $4,017.7 million, despite increases in compensation and benefits and sales, distribution, and marketing expenses.
• The company's effective income tax rate decreased significantly to 22.2% for the quarter and 22.7% for the six-month period, compared to 72.8% and 31.5% in the prior year, respectively.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a positive filing due to strong revenue growth, significant increases in net income and EPS, and growth in AUM, despite ongoing legal challenges and market volatility.

Positives

• Significant year-over-year growth in net income attributable to Franklin Resources, Inc. ($268.2 million for Q2 2026, up 77%).
• Substantial increase in diluted earnings per share ($0.49 for Q2 2026, up 88%).
• Growth in total operating revenues, up 9% to $2,294.9 million for the quarter.
• Increase in Assets Under Management (AUM) to $1,682.1 billion, up 9% year-over-year.
• Positive net flows of $28.3 billion for the quarter and $55.1 billion for the six-month period.
• Acquisition of Apera Asset Management contributing to growth.
• Operating expenses remained flat year-over-year for the six-month period.
• Improved investment performance, with 65% of mutual fund AUM in the top two quartiles for the 1-year period.
• Decreased effective income tax rate, improving net income.

Negatives

• Net losses on investments for the company's own portfolio of $20.7 million for the quarter and $29.3 million for the six-month period.
• Net market change, distributions, and other negatively impacted AUM by $30.2 billion for the quarter.
• Amortization of intangible assets decreased significantly by 55% due to assets becoming fully amortized, which is a one-time benefit.
• The company faces ongoing legal proceedings, including those related to Western Asset Management investigations and Franklin Templeton 401(k) Retirement Plan Litigation, which could result in significant costs and reputational damage.

Risks

• Market and volatility risks, global operational risks, competition and distribution risks, third-party risks, technology and security risks, human capital risks, cash management risks, and legal and regulatory risks are highlighted.
• The initiation or unfavorable resolution of legal proceedings or other claims and regulatory investigations could result in additional costs, monetary judgments, settlements, fines, penalties, restitution, alterations in business practices, reputational harm, and other financial impacts.
• The amount and mix of AUM are subject to significant fluctuations, including as a result of reputational harm, that can negatively impact revenues and income.
• Uncertainties regarding the global economy remain for the foreseeable future.
• The company's ability to access capital markets in a timely manner depends on various factors including credit rating, global economic conditions, and investor willingness to purchase securities.

Future Outlook

The company's future outlook is influenced by global economic conditions, market volatility, and its ability to attract and retain assets under management. Management remains focused on investment performance, client service, expense management, strategic investments in technology, and protecting brand recognition. The company expects to continue paying comparable regular dividends and may opportunistically repurchase shares, but anticipates spending more on business investments, including acquisitions.

Management Comments

• During our second fiscal quarter, U.S. and global equity markets declined amid heightened volatility, driven by the escalation of geopolitical tensions in the Middle East, rising energy and gas prices, and renewed inflation concerns.
• 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.
• While we remain focused on expense management, we will also seek to attract, retain and develop personnel and invest strategically in systems and technology to support our evolving business.
• We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships.

Industry Context

StockSavvy.ai notes that Franklin Resources, Inc. operates in a highly competitive global asset management industry. The recent acquisition of Apera Asset Management aligns with industry trends of consolidation and specialization in alternative asset classes like private credit. The company's focus on investment performance and AUM growth is critical in an environment where fees are under pressure and client demand for diverse investment solutions, including alternatives, is increasing.

Comparison to Industry Standards

• Franklin Resources' investment performance, as measured by the percentage of AUM exceeding peer group medians and benchmarks, shows mixed results. For mutual funds, 65% of AUM was in the top two quartiles for the 1-year period, indicating strong short-term performance in aggregate.
• Fixed Income AUM performance is notably strong across all periods (1-year to 10-year), with 80% of AUM exceeding benchmarks for 1-year and 75% for 5-year periods.
• Equity AUM performance is more varied, with 49% in the top two quartiles for 1-year and 58% for 10-year periods against peer groups, and 40% exceeding benchmarks for 1-year and 39% for 5-year periods.
• The company's effective investment management fee rate (annualized) was 41.0 basis points for Q2 2026, which is generally in line with industry averages for diversified asset managers, though specific fee rates vary significantly by asset class and product type.
• The acquisition of Apera Asset Management for $65.2 million (net) is a modest-sized acquisition compared to larger industry players, suggesting a strategic focus on expanding capabilities in a specific niche (European private credit) rather than broad market consolidation.

Legal Proceedings

• Western Asset Management (WAM) investigations and litigation related to trade allocations, with ongoing SEC investigation and DOJ resolution discussions. Ken Leech, former co-Chief Investment Officer, faces SEC complaint and DOJ indictment, with trial scheduled for June 15, 2026.
• Lawsuit filed by Western PA Electrical Employees Insurance Trust Fund (now Abilene Firemens Relief and Retirement Fund as lead plaintiff) against Franklin, WAM, and certain executives concerning trade allocations, with an amended complaint expanding the class period and naming additional defendants.
• Franklin Templeton 401(k) Retirement Plan Litigation alleging breaches of fiduciary duties and failure to monitor fiduciaries in connection with the plan's inclusion of proprietary funds as investment options.
• Other litigation and regulatory matters arising in the normal course of business, for which management believes an adequate accrual has been made.

Stakeholder Impact

• Shareholders: Potential for increased value due to improved financial performance and dividends, but also risk from ongoing legal proceedings.
• Employees: Potential for bonuses based on performance, but also risk of workforce optimization initiatives.
• Clients: Benefit from strong investment performance and continued service, but face potential risks associated with the company's overall stability if legal issues escalate.
• Creditors: The company's debt covenants are being met, and liquidity appears sufficient, but future capital market access is a consideration.

Next Steps

• Continue to focus on investment performance and client service.
• Attract, retain, and develop personnel.
• Invest strategically in systems and technology.
• Protect and further brand recognition.
• Develop and maintain broker-dealer and client relationships.
• Continue to manage expenses.
• Potentially pursue further acquisitions.
• Continue paying regular dividends.
• Repurchase shares opportunistically.

Key Dates

Recommendation

While the financial results show significant improvement in revenue, net income, EPS, and AUM, the ongoing and potentially costly legal proceedings, coupled with general market volatility, warrant a cautious approach. The company's ability to navigate these legal challenges and maintain its growth trajectory will be key. Therefore, a 'hold' recommendation is appropriate, suggesting investors monitor the resolution of legal matters and continued operational performance.

Keywords

Franklin Resources, Franklin Templeton, SEC Filing, 10-Q, Quarterly Report, Asset Management, Investment Management, Assets Under Management, AUM, Financial Results, Earnings Per Share, Net Income, Revenue, Operating Expenses, Acquisition, Apera Asset Management, Western Asset Management, Legal Proceedings