Total AUM at March 31, 2025, was $1,540.6 billion, representing an 8% decrease from September 30, 2024, and a 6% decrease from March 31, 2024. This decline was primarily driven by $76.2 billion in long-term net outflows and a negative impact of $64.5 billion from net market change, distributions, and other for the six months ended March 31, 2025.

Long-term net outflows totaled $26.2 billion for the three months and $76.2 billion for the six months ended March 31, 2025. A substantial portion of these outflows, $101.5 billion for the six-month period, originated from Western Asset Management (WAM) due to investment performance issues and regulatory investigations, indicating a challenge to organic growth.

The acquisition of Putnam on January 1, 2024, contributed to the 5% increase in total operating revenues for the six months ended March 31, 2025. It also added $148.3 billion to AUM in the prior fiscal year, demonstrating its strategic importance in partially offsetting broader AUM declines and supporting revenue streams.

Total operating expenses decreased 3% to $1,965.8 million for the three months ended March 31, 2025, primarily due to headcount reductions and lower acquisition-related retention expenses. However, for the six months ended March 31, 2025, total operating expenses increased 5% to $3,998.4 million, largely attributable to the ongoing integration of the Putnam business.

Salaries, wages, and benefits decreased $7.9 million (2%) for the three months ended March 31, 2025, primarily due to headcount reductions, with the global workforce decreasing to approximately 10,000 employees from 10,100. Additionally, occupancy expenses decreased 9% ($6.9 million) for the three months due to the consolidation of office space in New York City, reflecting successful cost optimization efforts.

The company recognized an impairment charge of $24.4 million during the three months ended March 31, 2025, related to certain indefinite-lived intangible assets for acquired mutual fund investment management contracts. This charge was due to decreased AUM in the related products, indicating underperformance or significant outflows in specific acquired assets.

Western Asset Management (WAM) is subject to parallel investigations by the SEC, DOJ, and CFTC concerning trade allocations of treasury derivatives. The former co-Chief Investment Officer received a 'Wells Notice' and an indictment, leading to significant outflows from WAM and potential reputational harm to the company.

Total AUM decreased 6% year-over-year to $1,540.6 billion, driven by $76.2 billion in long-term net outflows and $64.5 billion in negative net market change for the six months ended March 31, 2025. This reflects the inherent market and investment performance risks, particularly in the equity asset class which experienced significant market depreciation.

The effective income tax rate significantly increased to 72.8% for the three months and 31.5% for the six months ended March 31, 2025, compared to 26.4% and 24.2% in the prior year, respectively. This rise is primarily due to losses of Consolidated Investment Products (CIPs) for which there are no related tax benefits or valuation allowances on net operating losses and capital losses.

The 6% year-over-year decrease in total AUM to $1,540.6 billion and $76.2 billion in long-term net outflows for the six months ended March 31, 2025, indicate a challenging competitive environment. These outflows, particularly from WAM due to performance issues, suggest that clients may be reallocating assets to competitors.

The effective investment management fee rate (excluding performance fees) decreased to 40.7 basis points for the six months ended March 31, 2025, from 41.7 basis points in the prior year. This decline is attributed to a higher proportion of AUM in lower-fee equity products (including those from Putnam) and lower-fee fixed income AUM at WAM, indicating pricing pressure or a shift towards less profitable assets.

Franklin Resources maintains a broad product mix across equity, fixed income, alternative, multi-asset, and cash management asset classes, delivered under various distinct brand names like Franklin, Templeton, and Legg Mason. This diversification helps meet diverse investor needs and provides a competitive advantage in a complex market.

Compensation and benefits expenses decreased 11% ($108.2 million) for the three months ended March 31, 2025, primarily due to headcount reductions, with the global workforce decreasing by 100 employees. Occupancy expenses also decreased 9% ($6.9 million) for the quarter, reflecting lower costs from consolidating office space in New York City, indicating effective operational streamlining.

Acquisition-related retention expenses decreased substantially by 67% ($69.8 million) for the three months and 54% ($93.1 million) for the six months ended March 31, 2025. This reduction is primarily due to lower costs associated with the Putnam acquisition, as performance-based and time-based awards mature, improving overall cost efficiency.

Information systems and technology expenses increased 2% ($3.6 million) for the three months and 10% ($28.6 million) for the six months ended March 31, 2025. This increase is primarily driven by higher technology consulting and software costs, indicating continued investment in core infrastructure and digital capabilities.

Information systems and technology expenses rose by 2% to $158.7 million for the three months and 10% to $314.7 million for the six months ended March 31, 2025. This increase is primarily due to higher technology consulting and software costs, aligning with management's stated focus on investing strategically in systems and technology to provide a secure and stable environment.

Amortization of intangible assets increased 33% to $112.5 million for the three months and 32% to $225.1 million for the six months ended March 31, 2025. This is primarily due to a reduction in the remaining useful life of definite-lived intangible assets related to Western Asset Management (WAM), reflecting ongoing integration or revaluation of acquired technological or client-related assets.

On April 30, 2025, the Company entered into an Amended and Restated Revolving Credit Agreement, providing a five-year term and $1.1 billion of aggregate available borrowings. This new facility, which absorbed $300.0 million from a prior credit facility, enhances the Company's ability to meet general corporate purposes and manage its capital structure.

The Company declared regular dividends of $0.64 per share for the six months ended March 31, 2025, an increase from $0.62 per share in the prior year period. Management expects to continue paying comparable regular dividends on a quarterly basis, signaling a commitment to shareholder returns despite a 16% decline in net income attributable to Franklin Resources, Inc. for the six-month period.

During the six months ended March 31, 2025, the Company repurchased 0.8 million shares for $15.8 million. As of March 31, 2025, 29.2 million shares remained available under the Board's authorization, out of a total of 40.0 million shares. This indicates management's ongoing strategy to offset dilution from stock-based compensation and potentially return capital to shareholders opportunistically.

The ongoing investigations by the SEC, DOJ, and CFTC into Western Asset Management (WAM) regarding certain trade allocations, including the indictment of a former co-Chief Investment Officer, highlight material governance challenges and potential breaches of ethical conduct within the organization. This directly impacts the 'Governance' aspect of ESG.

Management states that the ultimate resolution of legal proceedings and regulatory matters, including the WAM investigations, is not expected to materially affect the Company's business, financial position, results of operations, or liquidity, and that adequate accruals have been made. However, the filing acknowledges that these matters 'may cause reputational harm' and 'could result in additional expenses and collateral costs,' indicating lingering social and governance risks.

During the second fiscal quarter, U.S. equity markets declined (S&P 500 Index down 4.3% for the quarter), while European and emerging markets showed gains. This mixed performance contributed to a negative net market change of $11.6 billion on AUM for the three months ended March 31, 2025, and significant losses from consolidated investment products.

Foreign exchange revaluation resulted in a $9.5 billion decrease in AUM for the six months ended March 31, 2025, primarily due to a stronger U.S. dollar compared to the Australian dollar, Canadian dollar, Euro, and Japanese Yen. This highlights the Company's exposure to currency fluctuations given its global operations.

The Company operates in a complex and uncertain business and regulatory environment, subject to various global laws, rules, and regulations that impose restrictions, limitations, registration, reporting, and disclosure requirements. This adds complexity to global compliance operations and requires continuous monitoring and adaptation.