T. Rowe Price (TROW) Q3 2026 earnings review
T. Rowe Price revenue rises, but client withdrawals quadruple
A flat stock market exposed the cost of customer withdrawals at T. Rowe Price, an investment manager overseeing $1.86 trillion largely in retirement accounts. Clients pulled a net $28 billion during the third quarter, quadruple the prior quarter's pace, which dragged total assets down $31 billion. Revenue still rose 6% from a year ago because higher average asset levels and venture fund gains offset a lower fee rate.
| Net revenue | $2,005M +5.9% from a year ago |
|---|---|
| Net client outflows | $28.3B $6.5B outflow last quarter |
| Annualized effective fee rate | 37.8 bps 39.1 bps a year ago |
| Full-year tax rate outlook | Narrowed middle of the range: 24.5% |
⚖️ Verdict: 🔴 Bearish
The story got worse because the second-half outflow drop management warned about arrived across both stock and retirement funds. Meanwhile, chief executive Rob Sharps's push into lower-cost fund wrappers kept squeezing the average fee rate down for a seventh straight quarter. One positive: operating expenses came in below what the full-year outlook implied, though a $10 million accounting delay for technology work flattered the quarter.
The question now is whether newer exchange-traded funds and private credit partnerships can ever bring in enough revenue to offset clients leaving traditional stock mutual funds. Either the new wrappers attract fresh money that stabilizes total revenue, or they simply move existing clients into cheaper products. Fourth-quarter client flows and the 2027 expense plan will show which path holds.
🐂 Bull Case
Alternative Funds and Venture Gains Lifted Revenue
T. Rowe Price has been building its alternative investment unit—which covers private credit, venture capital and other funds outside daily stock and bond trading—to offset withdrawals from its older mutual funds. While alternatives still represent just 3.4% of total assets, they generated $92.7 million in advisory fees this quarter, up 9.4% from a year ago.
The bigger boost came from capital allocation-based income, which is the firm's share of investment profits (known as carried interest) from those private funds. That line jumped to $59.9 million from $11.9 million last quarter, "primarily driven by carried interest related to the firm's recently launched late-stage venture fund" and a rebound "primarily driven by relative performance in credit strategies".
What to watch: Whether the late-stage venture fund exceeds its target size in the fourth quarter. A strong close would lock in fee-paying capital for several years, because clients cannot pull money daily from private funds.
Operating Costs Ran Below the Full-Year Plan
Three months ago, management raised its full-year expense growth plan, which by our math pointed to $1,223 million to $1,292 million per quarter in the second half for operating expenses excluding one-offs and fund profit-sharing. In the third quarter, T. Rowe Price spent $1,175.5 million, down 1.6% from the second quarter and 5.7% higher than a year ago.
Two expense lines moved in opposite directions. Distribution and servicing costs rose 0.5 percentage points of revenue from a year ago to 5.5%, while regular employee pay and benefits edged down 0.3 percentage points to 33.2%. A one-off accounting item helped: the asset manager booked "the reversal of about $10 million in accrued technology-related expenses related to work that is expected to be completed in future periods".
Without that $10 million delay, core operating expenses would have grown 6.6% from a year ago by our math, near the top of the annual plan. What to watch: Fourth-quarter operating expenses excluding one-offs. By our math, the middle of the full-year plan leaves $1,340 million for the fourth quarter, a 9.6% jump from a year ago as delayed technology work and year-end bonuses hit.
🐻 Bear Case
Client Outflows Quadrupled as Markets Stalled
For five years, rising stock markets have hidden customer withdrawals at T. Rowe Price. Last quarter, management warned that withdrawals would worsen in the second half. They did: clients pulled a net $28.3 billion in the third quarter, more than four times the $6.5 billion pulled in the second quarter and the worst quarterly outflow in the past two years.
- Stock fund net outflows: $25.6 billion, nearly double the $13.5 billion pulled last quarter
- Market performance and income: reduced assets by $2.4 billion, after adding $190.2 billion last quarter
- Ending assets under management: fell $30.7 billion in the quarter to $1,862.7 billion
Because the stock market paused in the third quarter, investment gains did not replace the money clients took out. At this quarter's pace, withdrawals alone shrink the asset base by 6.0% a year by our math. What to watch: Net client flows in the fourth quarter, when clients typically rebalance portfolios for taxes. Another outflow above $20 billion would enter 2027 with a shrinking fee base.
Cheaper Products Keep Squeezing the Fee Rate
"We continue to expand our ETF, SMA, and model portfolio businesses, extending our active investment expertise to more clients through a broader range of portfolio solutions," chief executive Rob Sharps said. Exchange-traded funds (ETFs), separately managed accounts (SMAs) and model portfolios are newer fund wrappers that T. Rowe Price uses to keep clients who are leaving traditional mutual funds.
The problem is that these newer wrappers charge less. The firm's effective fee rate—annual advisory fees as a share of average assets, excluding performance bonuses—dropped to 0.378% (37.8 basis points) from 0.381% last quarter and 0.391% a year ago. The company said "client flows and transfers drove a mix shift in assets under management toward lower fee products and asset classes".
That is why average assets grew 9.5% from a year ago while advisory fee revenue rose only 5.8%. The fee rate has fallen in every quarter for two years. What to watch: Standalone asset and inflow numbers for ETFs and SMAs on the earnings call. If those wrappers grow while the blended fee rate drops 0.003 percentage points each quarter, the new products are merely replacing high-fee mutual funds at a discount.
Multi-Asset Retirement Funds Turned Back to Outflows
About two-thirds of T. Rowe Price's client money sits in retirement accounts, anchored by its multi-asset portfolios—funds that mix stocks and bonds and automatically shift toward safer holdings as a worker nears retirement. After bringing in $4.1 billion in the first quarter and $0.4 billion in the second, multi-asset funds suffered $7.6 billion of net withdrawals in the third quarter.
Those withdrawals plus $1.8 billion of market losses pulled multi-asset holdings down to $680.6 billion from $690.0 billion in June. Even when short-term investment returns improve, employers continue shifting retirement plans toward cheaper index-tracking funds. What to watch: Whether the co-branded target-date retirement funds with Goldman Sachs win their first client commitments by year-end, which would test if private-market additions can halt the retirement outflows.
Risks this quarter didn't answer
Four standing concerns and watch items live in the quarterly filing or conference call remarks and are not yet readable from the earnings release.
- Fund performance against index funds: the quarterly filing's performance table will show if more than 23% of stock fund assets beat passive peers over one year.
- ETF and SMA inflows: the release gives no asset totals or fee rates for these newer wrappers; management normally gives the asset totals on the call.
- Goldman Sachs partnership launches: no update on when the second joint fund (a public-private stock fund) or the target-date retirement series will launch.
- Controllable expenses: management's multi-year pledge to keep controllable cost growth in the low single digits still lacks a dollar line in the financial tables.
👓 Other Themes
Rising Interest Rates Cut Investment Gains
Alongside client funds, T. Rowe Price holds its own cash and bond portfolio on its balance sheet. Income from those holdings, excluding one-offs, fell 64.1% from a year ago to $18.0 million because rising interest rates caused $22.0 million of market losses on bond holdings, offsetting $40.5 million of dividend interest. That non-operating drop kept profit per share excluding one-offs nearly unchanged from a year ago at $2.86.
💲 Other KPIs
Share count fell 2.8% from 219.7 million a year ago, lifting per-share profit growth 2.4 percentage points above net income growth. However, the sequential reduction slowed to 0.6 million shares in the third quarter, down from 3.4 million shares retired in the second quarter, showing that buybacks slowed down.
Cash of $3,774.3 million plus $4,185.2 million of investments on the balance sheet rose 18.7% from $6,703.4 million at the end of 2025 by our math. With no long-term debt on the balance sheet and $2,752.7 million of nine-month operating cash flow attributable to the firm, cash continues to pile up.
Total employees fell 2.4% from 7,830 a year ago under the firm's restructuring program, which seeks to "reduce expense growth and realign resources to support investment in existing and future capabilities". Headcount rose 1.3% from 7,544 in June, marking the second straight quarter of sequential hiring after last year's cuts.
🔮 Guidance
Unchanged at the middle of the range. T. Rowe Price narrowed its full-year tax rate plan by 0.5 percentage points on each side, keeping the middle at 24.5%. With the rate excluding one-offs at 24.0% over the first nine months and 23.9% in the third quarter, the middle of the annual plan points to a 26.0% rate in the fourth quarter by our math.
❓ Key Questions
What are the fee rates on ETFs and SMAs?
Management highlights expansion in ETFs, SMAs and model portfolios, but the overall fee rate fell to 37.8 basis points. Investors need the standalone fee rate and revenue of these vehicles to see how much revenue T. Rowe Price loses when a client switches from a mutual fund.
Did full-year expense plans change after Q3?
The earnings release gives only a tax rate outlook. Because third-quarter operating costs benefited from a $10 million technology accrual reversal that moves work into future periods, investors need to know if full-year expense growth still sits at 4% to 7%.
What caused the $7.6 billion multi-asset outflow?
Last quarter, management warned of a gap in its late-stage retirement pipeline. Investors need to know how much of the $7.6 billion multi-asset outflow came from fewer new retirement plan wins versus existing employers pulling money.
How much did the venture fund raise?
Accrued carried interest rose to $63.1 million on gains in the new late-stage venture fund. Management previously expected to beat its fundraising target for this fund later this year, but has never disclosed the dollar target or fee terms.