* Merrill adviser force rises in Q4, Morgan Stanley falls
* Morgan Stanley earns $29 mln from wealth management group
* Merrill wealth management profit up 9.5 pct from yr-ago (Adds link to graphic)
By Joseph A. Giannone
NEW YORK, Jan 20 (Reuters) - U.S. retail brokerages posted mixed fourth-quarter profits as higher merger and recruiting expenses offset growing management fees and a market-fueled increase in client assets.
On the busiest day of bank earnings, several of the biggest wealth managers reported gains in fees, commissions and client assets. But the high cost of mergers and the impact of thousands of brokers moving to new jobs hurt results.
Morgan Stanley (MS.N), which merged its wealth management arm with Citigroup's (C.N) Smith Barney to form Morgan Stanley Smith Barney on May 31, said profit at the largest U.S. brokerage fell 14 percent to $162 million.
Adjusting for Citi's 49 percent stake, Morgan Stanley realized just $29 million from the business.
"We went through a frenetic period as an industry over the last couple of years, in terms of deals and dislocation and then ultimately mergers," Morgan Stanley President James Gorman told analysts on a conference call.
Net revenue rose 4 percent to $3.14 billion from the third quarter, but expenses rose even more.
Total client assets rose 2 percent to an industry leading $1.56 trillion, even as Morgan Stanley Smith Barney's brokerage force fell by 25 to 18,135 during the quarter. Clients withdrew $4.7 billion in assets, the firm's third quarter of declines.
Bank of America's (BAC.N) Merrill Lynch Global Wealth Management fared much better, both in terms of retaining brokers and earnings performance.
To view a graphic of Morgan Stanley and Bank of America's wealth management units' performance in the quarter, click on link.reuters.com/puj74h
Profit rose 43 percent from the third quarter, which had higher credit losses. Revenue from Merrill's "Thundering Herd" rose 1.6 percent to $3.1 billion, as rallying markets boosted assets by 2 percent to $1.27 trillion during the quarter.
Merrill's broker force grew by 27 to 15,006 in the quarter, reflecting higher retention rates plus increased hiring and training. Bank of America said the Merrill Lynch integration is on track, with savings surpassing its forecasts since it took over Merrill Lynch on Jan 1. last year.
The industry's turmoil sent thousands of brokers and advisers into motion last year, pursuing ever-higher retention and recruiting bonuses and putting assets into play.
Discovery Database, a research firm, said 8,667 registered brokers from Morgan Stanley, Merrill, Wells Fargo and UBS Wealth Management Americas changed jobs last year.
Now Wall Street is settling in for a period of stability, with many brokers tied to their firms.
"The industry is moving toward a more rational recruiting model," Gorman said. "There is relatively low recruiting activity, probably the lowest that I've seen in my career of 10 years overseeing these kinds of businesses."
Wells Fargo & Co (WFC.N), which acquired Wachovia and its brokerage business at the beginning of last year, said increased client assets boosted trust and investment fees.
Wells Fargo's profit from wealth management, brokerage and retirement businesses fell 46 percent to $131 million from the third quarter, reflecting the costs of settling a case related to its previous sales of auction-rate securities.
Total revenue fell 3 percent to $2.88 billion from the previous quarter, as higher asset-based fees were offset by lower securities gains. Expenses soared 10 percent.
Wells Fargo noted recruiting efforts last year landed brokers that generated twice the revenue of those who left.
Bank of New York Mellon (BK.N) said wealth management pretax income rose 22 percent from a year earlier but was little changed from the third quarter. Fee revenue rose 13 percent from a year ago, as client assets rose 11 percent to $154 billion from a year-earlier -- the bank's 16th quarter of inflows.
Northern Trust (NTRS.O) said fees generated by its trust and private banking services totaled $219.9 million in the current quarter, up 3 percent year over year. Rising stock values and new business boosted client assets at the Chicago bank by 12 percent to $627.2 billion from a year earlier.
Raymond James Financial Inc (RJF.N), the largest regional brokerage, said net income sank 20 percent to $49 million as losses from its commercial bank arm dragged on earnings.
Private client income climbed 28 percent to $41 million from the previous quarter, while investment advisory fees dipped, but compensation costs rose 13 percent to $471 million on Dec. 31.
St. Petersburg, Florida-based Raymond James said its adviser force declined by 46 to 5,329 during the quarter. (Reporting by Joseph A. Giannone; additional reporting by Joe Rauch in Charlotte, North Carolina. Editing by Robert MacMillan, Tim Dobbyn, Matthew Lewis and Gunna Dickson)