High-octane advisory firms all seem to work proactively to prosper through turbulent times.

To find out how the most profitable firms weather tough economic conditions, TD Ameritrade tracked the top 25% of “standout” firms since the Great Recession of 2008 to pin down what traits and actions have driven sustained growth and overall business value even during the toughest of times.

The firm’s 2020 FA Insight Study of Advisory Firms: Growth by Design takes a look at how these firms approached new client development, team expansion, productivity and expense management during the Great Recession.

Standout firms are defined as those in the top 25% of their development stage based on the latest calendar year operating profit margin and revenue growth.

“While TD Ameritrade is hoping the insights garnered from these stellar advisors help their peers weather the pandemic more profitably, it also hopes the analysis assists advisors who were falling prone to “slowing revenue growth, rising expenses and declining profitability” prior to Covid, the firm said.

What sets standout firms apart and what can advisors learn from how they responded to the Great Recession?

In comparison to their peers, “these firms were not satisfied with simply hunkering down to weather the storm,” TD Ameritrade said. Instead, standouts demonstrated confidence and assertiveness in the following four key areas which allowed the firms to excel:

• They emphasized new client development. While growth at peer firms stalled, standouts consistently added clients. “In 2009, their weakest year, the typical Standout firm still managed 5% client growth compared to virtually no growth for peer firms,” TD Ameritrade said.

• They worked on team expansion. Along with steady client growth, standout firms increased their median total team members from seven in 2007 to 10 by 2010, in contrast to peer firms during the same period whose teams contracted slightly.

• They positioned themselves for rising productivity. With extra capacity and revenue growth stalling at early in the recession, standout productivity initially weakened, too. “But by 2011, revenue per revenue generator at Standout firms was 22% greater than in 2008. Concurrently, productivity at other firms fell by 10%.” Ultimately, the added capacity allowed standouts to take better advantage of new business opportunities as the recession transitioned to recovery,” TD Ameritrade said.

• They managed expenses and cut costs. Standouts were quick to adjust costs to maintain profitability, beating their peers in bottom line and expense management. Firms made “short-term sacrifices to ensure the long-term sustainability and growth trajectory of the firm.” As a result, overhead expenses as a share of revenue dropped from 45% to 31% during the 2008-2011 period. Standout owners cut back on their own salaries as well, which helped to defray the expense of additional staff.

The powerhouse custodian also recommended that firms take a hard look at their pricing, which it said “is another frequently overlooked measure for supporting firm growth and profitability. Every market downturn invariably calls into question the efficacy of AUM fees,” TD Ameritrade said.

Charging a minimum client fee -- a pricing floor with clear performance advantages -- is one way to insure against market impact and improve profitability. Firms who are disciplined in their adherence to minimum fees demonstrate clear performance advantages, including 42% greater profitability, TD Ameritrade said.

In 2019, the typical firm generated 96% of all revenue from an AUM-linked fee, with 41% of firms reporting that they are completely satisfied with the current pricing structure and have no desire to change.

The typical firm offers 19 services, the firm said. Some 15 of the most common services provided unrelated to asset management. Just 6% of 2019 study firms collected half or more of their revenue from fees not tied to AUM. Based on their performance characteristics, these pioneering firms appear to be still fine-tuning their pricing approach, “but making a change has a very real potential to drive revenue growth,” the firm concluded.