* Fiscal Q4 EPS 29 cents vs Wall Street view 31 cents
* Q4 net revenue $703.5 mln vs expected $715 mln
* Raises dividend 1 cent from last quarter to 6 cents/shr
* Expects to earn $1.00 to $1.35 per share in fiscal 2012
* Shares down 2.7 percent (Rewrites, adds analysts' and CEO's comments updates share price)
By John McCrank
Oct 25 (Reuters) - Discount brokerage TD Ameritrade (AMTD.O) reported a 44 percent increase in quarterly earnings and record trading, but the results fell short of expectations as the difficult market environment and spending on sales incentives weighed.
The higher earnings reflected a quarter in which market volatility surged, prodding investors from the sidelines and boosting commission and transaction fees.
TD Ameritrade said on Tuesday it earned $163.7 million, or 29 cents a share, in its fiscal fourth quarter, ended Sept. 30, up from $114 million, or 20 cents a share, in the 2010 period.
Analysts were expecting the Omaha, Nebraska-based company to earn 31 cents a share, according to Thomson Reuters I/B/E/S.
"It was a slight miss," said Patrick O'Shaughnessy, an analyst at Raymond James. "But overall, it was actually a pretty good quarter."
Part of the miss came from higher spending on sales incentives and the addition of 70 investment consultants in the company's retail branches. Normally it adds 50 to 100 sales people a year on the retail side. Spending on employee compensation and benefits was $174.2 million, up $19.6 million.
"That's what I call a good expense," TD Ameritrade Chief Executive Fred Tomczyk said in an interview.
The sales push, along with strong flows from independent registered investment advisers that use TD Ameritrade as a custodian, helped the company bring in $12.4 billion in net new assets in the quarter, more than double the year-ago figure.
O'Shaughnessy said he had expected $7.5 billion net new assets, which are a key driver of future revenues, while Alex Kramm, an analyst at UBS, said he expected around $10 billion.
"Given all of the challenges during the third quarter, they certainly had solid results and continue to have the highest growth in gathering assets, at least in terms of percentages, in the industry," Kramm said.
The impasse over the U.S. debt ceiling, the downgrading of the U.S. credit rating, and concerns that Europe's sovereign debt crisis could drag the global economy back into recession led to a 14 percent drop in U.S. equities share prices in the quarter, as measured by the Standard & Poor's 500 index.
That drop, along with low short-term interest rates, weighed on the shares of retail brokers. TD Ameritrade's share price dropped nearly 25 percent in the quarter, to $14.71.
The shares have rebounded some, but were down 2.68 percent at $15.79 on Tuesday afternoon, in line with other online brokers, amid general weakness in financials.
One of the main pressures on profits at the retail brokers has been the extended period of low interest rates.
In fiscal 2011, TD Ameritrade's net interest margin -- the return it earns from clients' investments -- was 199 basis points. In 2008, before interest rates plummeted due to the financial crisis, it was 450 basis points.
"If you applied the 2008 net interest margin to today's balances, our operating results would be more than double what they were in 2011," Tomczyk said.
He said he expects rates to stay at near-zero levels for at least two years, and that the company will focus on streamlining processes and achieving operational efficiencies to help increase organic growth.
TD Ameritrade said revenue rose to 15 percent to $703.5 million, compared with the $715 million analysts were expecting.
The company also said it raised its cash dividend by 20 percent from the previous quarter to 6 cents per share.
Clients made a record 415,739 trades per day in the quarter, up from 317,684 a year earlier. Commission and transaction fees rose 26 percent to $315.5 million.
TD Ameritrade said it expects to earn $1.00 to $1.35 a share in fiscal 2012. It earned $1.11 a share in fiscal 2011.
Kramm said the outlook was in line with his expectations.
Toronto Dominion Bank (TD.TO), which owns a more than 40 percent stake in TD Ameritrade, said it expects the company's earnings to add C$54 million to the bottom line of its wealth management unit. The bank, Canada's No. 2 lender, reports its fiscal fourth quarter results on Dec. 4. [ID:nN1E79O0RP] (Reporting by John McCrank in Toronto; Editing by Gerald E. McCormick, Lisa Von Ahn and Steve Orlofsky)