The Baltimore company said on Friday for the three months ended Dec. 31 its net income fell to $28.1 million, or 20 cents per share, from $61.6 million, or 41 cents a share, a year earlier.
Analysts polled by Thomson Reuters I/B/E/S on average expected the company to earn 25 cents per share. The quarter included $42.3 million in transition costs as part of a reorganization begun in 2010, up from $24 million in the year-ago quarter.
Legg Mason has been among a number of asset managers to report a long string of outflows, driven by a mix of performance problems and a turn by investors away from the equity funds that traditionally were among the industry's most profitable products.
Legg Mason said its third-quarter net outflows were just $1.3 billion, down from $17.6 billion in the previous quarter and $16.7 billion in the year-earlier third quarter.
Assets under management were $627 billion at the end of the December quarter, up from $611.8 billion at the end of the prior quarter but down from $671.8 billion a year earlier.
In a statement, Legg Mason Chief Executive Mark Fetting said, "It was a challenging quarter, with the cumulative effect of 2011's second-half market turmoil impacting AUM and revenues. However, our core business held up well, the flow picture improved and investment performance remained strong."
Legg Mason shares have fallen 22 percent over the past year, compared with an 18 percent drop in the Dow Jones index of U.S. asset managers,.