* Fourth-quarter net income $0.36 vs est. $0.35
* Revenue rises 10 percent to $709 million
* Forecasts FY 2014 EPS $1.20-$1.40 vs est. $1.21
* Raises dividend to 12 cents from 9 cents
* Declares special dividend of 50 cents
Oct 29 (Reuters) - TD Ameritrade Holding Corp, the biggest U.S. discount brokerage by client-trading volume, reported a 40 percent jump in its fiscal fourth-quarter net income that just beat analysts' estimates as both trading commissions and product fees soared.
Shares of TD Ameritrade were down 1.1 percent to $27.62 in afternoon trading on Tuesday. In research reports, some analysts said they were disappointed at the decline in net interest margin during the quarter and the firm's weak interest profit forecast for next year.
Budget and economic policy uncertainty in Washington, nevertheless, stimulated active traders during the quarter, company executives said. At the same time, more conservative investors bought fee-based products such as mutual funds and exchange-traded funds. The quarter ended on Sept. 30, just before the government shutdown.
TD Ameritrade said that market volatility continues to accelerate this month, spurring 419,000 average trades per day among its clients through Oct. 28, compared with 382,000 last quarter and 374,000 for the company's full fiscal year that ended on Sept. 30.
It and other big retail brokerage firms such as Charles Schwab Corp, however, continue to struggle with low interest rates that depress the revenue and profits they glean by investing client assets.
Schwab two weeks ago reported a 17 percent rise in profit on asset-based fee growth, but waived a record $180 million in money-market fund fees so investors would not have negative returns from the funds' near-zero yields. TD Ameritrade is much less active than its competitor in money markets, its CEO said, but continues to struggle with low returns on investments.
The depressed rate climate is likely to continue for another year or two and reflects a still-weak economy and tepid investor confidence, TD Ameritrade executives said in a conference call with analysts on Tuesday morning.
The firm also benefitted from the continuing trend of advisers leaving traditional brokerage firms, going independent and housing client assets and trades at the discount brokerage firms. In fiscal 2013, TD Ameritrade picked up an average of 1.5 new brokers leaving full-service firms each business day, and the sales pipeline "remains robust," Tomczyk said. TD Ameritrade trails Schwab and Fidelity Investments in servicing independent advisers.
Despite the politically induced boost in volatility and trading volume, executives said they would prefer more fiscal and economic policy certainty, blaming Washington's "crisis-to-crisis" management for restraining the U.S. economy and investor confidence.
"If the economy improves and interest rates go up, it's a lasting and long runway in front of us, whereas volatility won't last forever," TD Ameritrade Chief Executive Fred Tomczyk said.
Active client accounts rose 4 percent to 5.99 million in fiscal 2013. TD Ameritrade shareholders realized a total return of more than 75 percent through dividends and a stock price increase, but Tomczyk warned investors not to count on a repeat performance.
"I don't think you could expect that (return) every year," he said.
The Omaha, Nebraska-based brokerage firm forecast 2014 earnings per share of $1.20 to $1.40 compared with a 15 percent rise to $1.22 in fiscal 2013. That translates to a 14.8 percent increase at the high end and 6.5 percent in the middle of the range.
Net interest margins next year should remain stable to slightly up, the company said. But after five straight years of double-digit growth in gathering assets from clients, the firm projected 2014 new assets growing in a range of 7 to 11 percent.
TD Ameritrade, whose biggest shareholder is Canada's Toronto-Dominion Bank with a 42 percent stake, continues to generate significant cash that it has returned to investors. It raised its dividend to 12 cents a share from 9 cents a share in the fourth quarter, its third-consecutive, annual hike. For the second-consecutive year, it declared a special dividend of 50 cents per share.
The dividends signify that the company, which had its credit rating boosted last quarter by Moody's Investors Service, has strong capital and liquidity and does not see any significant acquisition opportunities on which to spend its cash, Tomczyk said. It also wants to reward current shareholders and attract new ones.
"While the environment is better, we still think that in '14 and '15 you will have a lot of uncertainty," he told Reuters. "A lot of people are looking for yield in this market, and we want to expand the shareholder base."
For the just-ended quarter, TD Ameritrade's net income rose to $200 million, or 36 cents a share, from $143 million a year earlier.
The consensus forecast of analysts surveyed by Thomson Reuters I/B/E/S was for earnings per share of 35 cents.
Net revenue rose 10.3 percent to $709 million while total operating expenses were up 3.6 percent to $430 million. Commissions and transaction fees soard 20 percent to $306 million, while net interest revenue was up 3 percent as the brokerage attracted about $10 billion of net new assets.
TD Ameritrade does not break out revenue or profits of its three main businesses - direct discount brokerage, trading and product sales to clients of independent investment advisers and its investment product fee business.
But Tomczyk said the company plans to add new wrap-fee fund products in 2014 - driving investment product fees up 15 percent to 25 percent - as well as "robust" growth in new independent advisers.