Franklin Templeton's fiscal Q3 2026 revenue rose 14% to $2.36B and adjusted EPS 47% to $0.72 on record $1.79T AUM and $18.4B of long-term net inflows, while a $100M SEC penalty closing the Western Asset probe held GAAP EPS to $0.31.
Revenue
$2.4B
+14.3% YoY
Net income
$172M
+85.8% YoY
Diluted EPS
$0.31
+106.7% YoY
Operating margin
9.2%
Overview
Franklin Resources (Franklin Templeton) grew revenue 14% in fiscal Q3 2026 (the quarter ended June 30, 2026; its fiscal year ends September 30) to $2.36 billion. Diluted earnings per share (EPS) roughly doubled, from $0.15 to $0.31. The quarter had two sides. The underlying business improved sharply: client money flowed in across every long-term asset class, assets under management (AUM) hit a record $1.79 trillion, and adjusted EPS rose 47% to $0.72. But reported (GAAP) profit was held down by one-time charges, the largest being a $100.0 million SEC civil penalty that closed the investigation into its bond manager Western Asset Management (WAM).
For a firm like this, AUM is the whole engine. Franklin mostly charges a percentage fee on the money it manages, so revenue follows the average level of client assets. That makes two numbers matter most: how much markets moved those assets, and how much money clients added or withdrew ("net flows").
Key metrics
Metric
Fiscal Q3 2026
Fiscal Q3 2025
YoY Change
Total operating revenues
$2,358.4M
$2,064.0M
+14.3%
Operating income (GAAP)
$215.8M
$154.1M
+40.0%
Operating margin (GAAP)
9.2%
7.5%
+1.7 pts
Adjusted operating margin (non-GAAP)
28.0%
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Fiscal year-to-date (nine months to June 30): revenue $6,980.4M (+8.6%), net income attributable to Franklin $695.2M (vs. $407.3M), diluted EPS $1.26 (vs. $0.70), adjusted EPS $2.13 (vs. $1.55), and long-term net inflows of $63.3B (vs. $85.5B of net outflows a year earlier).
Takeaway: The WAM problem that drained Franklin's fixed-income franchise is ending on both fronts. The SEC and DOJ matters are resolved, and WAM's long-term outflows slowed to $1.1B this quarter. That leaves an ongoing investor lawsuit. Meanwhile, private-markets and equity inflows are now large enough to carry total flows. The $100M penalty makes this quarter's GAAP profit look worse than the business is. The 28.0% adjusted margin is the better read on current earning power.
Assets and flows: positive in every long-term asset class
AUM rose $109.5B during the quarter. Most of the rise, $98.0B, came from markets, distributions and other effects, which included $110.0B of market appreciation led by equities. The S&P 500 rose 15.2% in the quarter, per the 10-Q. The rest came from $18.4B of long-term net inflows. Money-market ("cash management") net outflows of $7.0B partly offset those gains.
Asset class
Q3 FY26 long-term net flows
Q3 FY25 long-term net flows
AUM at June 30, 2026
AUM YoY
Equity
+$2.0B
-$0.6B
$756.9B
+15%
Fixed income
+$2.6B
-$13.0B
$441.4B
0%
Alternative
+$9.1B
+$2.5B
$294.2B
+14%
Multi-asset
+$4.7B
+$1.8B
$218.6B
+19%
Cash management (net flows)
-$7.0B
+$2.7B
$80.5B
+12%
Fixed income flipped from a $13.0B net outflow to a $2.6B net inflow. This is the WAM story. The 10-Q says long-term outflows benefited from "lower outflows across multiple fixed income vehicles at WAM." WAM's long-term net outflows were $1.1B in the quarter and $11.7B fiscal year-to-date. Fixed-income AUM is still flat year over year at $441.4B. Its share of average AUM fell from 28% to 25%, so the money that left over the past year has not come back.
Gross inflows jumped 61% to $122.0B, spread across equity and multi-asset mutual funds, separately managed accounts (portfolios run for one client or adviser platform), ETFs, and private funds. Outflows also rose 22% to $103.6B, mainly redemptions from equity products. Equity net flows were therefore only modestly positive (+$2.0B) despite the large gross sales.
Year-to-date alternatives inflows need one caveat. Starting in fiscal 2026, Franklin counts investors' uncalled capital commitments as inflows when they are committed. These are promises to invest later, and Franklin earns no fee on them yet. Before, they were not counted as flows. The change flatters private-markets flows against last year.
Alternatives: the growth leg
Alternatives (private equity secondaries, private credit, real estate, hedge-fund-style strategies) are the highest-fee part of the business. They produced $9.1B of the quarter's $18.4B long-term net inflows, with only $2.7B of outflows against $11.8B of inflows. Alternative AUM reached $294.2B, up 14% year over year. That includes $6.2B added by the October 2025 acquisition of Apera, a European private-credit firm.
The earnings release (8-K Exhibit 99.1, CEO Jenny Johnson's comments) says $10.3B of the quarter's alternative fundraising went into private-market strategies. It also says fiscal year-to-date private-markets fundraising reached $33.0B, "exceeding our fiscal year target with one quarter still to go." The release puts the institutional "won but unfunded" pipeline at a record $28.6B. These are mandates clients have awarded but not yet funded. Neither the 10-Q nor the release breaks these figures out by manager (Lexington Partners, Clarion Partners, Benefit Street Partners), so we can't say which one drove the fundraising.
Revenue: more assets and a slightly richer mix
Investment management fees rose $225.4M (+13.7%) to $1,866.2M. The 10-Q attributes the rise to higher average equity, multi-asset and alternative AUM, higher performance fees and the Apera acquisition, "partially offset by the impact of WAM outflows."
Effective fee rate means annualized management fees (excluding performance fees) divided by average AUM, the average price Franklin charges per dollar managed. It rose to 41.0 basis points (0.410%) from 40.5. This is a mix effect. Clients shifted toward equity and alternatives, which charge more, and away from lower-fee bonds. Across the industry fee rates usually drift down, so this is a real positive.
Performance fees (extra fees earned when a fund beats a hurdle, common in alternatives) were $78.1M versus $60.6M. They were $310.5M year-to-date versus $274.1M, which the 10-Q attributes to alternative and equity investment groups. These fees are lumpy and should not be extrapolated.
Sales and distribution fees rose 15% to $404.5M, but most of this passes through to the brokers and platforms that sell the funds. Sales, distribution and marketing expense rose by a similar amount, 15.5% to $555.4M.
Why GAAP and adjusted profit diverge so much
GAAP operating margin was just 9.2%. Operating margin means the share of revenue left after running the business, before interest and tax. The adjusted margin was 28.0%. Two things explain the gap.
Different revenue base. The adjusted margin divides by "adjusted operating revenues" of $1,816.6M. That figure strips out the distribution fees that simply pass through to intermediaries. The GAAP margin divides by the full $2,358.4M.
$293.1M of excluded charges and credits between GAAP operating income ($215.8M) and adjusted operating income ($508.9M), per the 10-Q reconciliation:
Item (fiscal Q3 2026)
Amount
WAM regulatory settlement (SEC civil penalty)
$100.0M
Special termination benefits (severance from workforce reductions)
$77.2M
Amortization of acquired intangible assets
$50.7M
Impairment of intangible assets (acquired mutual fund management contracts)
$33.0M
Deferred-compensation gains, minority-interest comp, CIP revenue, other acquisition costs
$55.8M
Acquisition-related retention (a credit this quarter)
-$23.6M
Several items pull in opposite directions compared with last year:
Amortization fell $61.5M because older acquired intangibles became fully amortized. That lifts GAAP operating income without any change in the business.
Acquisition-related retention pay was a $23.6M credit (vs. a $47.9M expense a year ago). That's because $67.3M of expense was reversed when certain equity awards were forfeited. This one-off flatters GAAP compensation this quarter.
Severance rose sharply to $77.2M from $26.9M, tied to "workforce optimization initiatives." Headcount was flat at about 10,100.
Excluding these items, underlying costs still rose. Incentive compensation increased $42.0M on higher bonus accruals and sales commissions. Legal and professional fees rose $19.3M.
Below operating income, GAAP profit also benefited from non-operating gains. Other income, net was $155.1M versus $22.5M, including $62.1M of net gains on Franklin's own investments (vs. $31.4M of losses a year ago). Much of the gain inside consolidated investment products belongs to outside investors in those funds, which is why income attributable to nonredeemable noncontrolling interests rose to $65.3M from $4.4M. The effective tax rate was 31.2% because the $100M penalty is not tax-deductible. Adjusted EPS excludes both the investment gains and the charges, which makes it the cleaner year-over-year comparison: +47%.
Western Asset: legal overhang mostly cleared
The WAM matter concerned how trades in Treasury derivatives were allocated across client accounts by former co-CIO Ken Leech. It hit WAM's flows hard: fixed income was Franklin's biggest source of outflows, with a $13.0B net outflow in the year-ago quarter. The 10-Q reports three developments this quarter:
On June 3, 2026, the DOJ told WAM it is no longer a subject of its investigation. The CFTC had already closed its probe.
On June 5, 2026, the SEC settled with WAM. WAM agreed, without admitting wrongdoing, to pay a $100.0M civil penalty into a Fair Fund for investors.
On June 12, 2026, criminal trade-allocation charges against Mr. Leech were dismissed. He pleaded to one obstruction charge. The SEC's civil case against him is still pending.
A shareholder class action against Franklin, WAM and certain executives is still open. Its alleged class period now runs through November 25, 2024, and it could still produce costs.
Capital returns and corporate news
Per the earnings release, Franklin returned $521.5M to shareholders in the quarter, including $348.1M to buy back 10.4 million shares. The quarterly dividend was $0.33 per share, up from $0.32. The 10-Q notes $450M of senior notes were repaid in March 2026. The release also announced the company would rename itself Franklin Templeton, Inc. effective August 17, 2026. The ticker stays BEN.
Outlook
Management gave no numeric revenue or earnings guidance in the 10-Q or the release. Our read:
The base going into fiscal Q4 is higher. Ending AUM ($1,791.6B) is 2.4% above the quarter's average ($1,750.0B), so fee revenue starts Q4 ahead unless markets fall.
What to watch: (1) whether fixed-income flows stay positive now that WAM's regulatory issues are resolved; (2) whether private-markets fundraising keeps its pace, given the $28.6B unfunded pipeline; (3) whether the effective fee rate holds at about 41 bps; and (4) how much more severance comes. Special termination benefits totaled $123.4M in the first nine months, so GAAP margins may stay well below adjusted ones while cost cuts continue.
The fiscal-year 10-K (year ending September 30, 2026) is the next major filing, expected in early-to-mid November.
Figures are from Franklin Resources' Form 10-Q for the quarter ended June 30, 2026, unless attributed to the July 31, 2026 earnings release (Form 8-K, Exhibit 99.1). Adjusted figures are company-defined non-GAAP measures reconciled in the 10-Q.