(Reuters) - Charles Schwab Corp's (>> Charles Schwab Corp) first-quarter profit rose 6 percent on higher fee revenue from mutual funds and other managed money products, but expenses increased and client trading revenue remained weak, the company said on Monday.

Earnings per share of 15 cents missed analysts' average forecast by a penny, partly because the San Francisco-based brokerage firm waived a higher-than-expected $155 million (101.4 million pounds) of fees on money-market funds to ensure investors did not lose money due to low interest rates.

Schwab warned last month that expenses related to benefits and a new commission structure would cost an additional $30 million in the quarter, causing the company to curb aggressive marketing plans for the year. First-quarter non-interest expenses rose 9.5 percent from a year earlier to $959 million, while revenue grew at a slower 8.5 percent pace.

"We are slowing the pace of our expense growth, but we are not cutting jobs and other areas, which is different from what a lot of others are doing," Chief Financial Officer Joe Martinetto said in an interview.

Schwab attracted money from clients for investing in mutual funds and advisory services at a torrid pace during the quarter, illustrating its evolution from a pioneer of discount brokerage to an asset-gathering behemoth more like Bank of America's Merrill Lynch than a discount broker like TD Ameritrade Holdings (>> TD Ameritrade Holding Corp.), he said.

"Trading revenue is going to be less and less a part of the story," Martinetto said, adding that he sees no catalyst for client trading to rev up anytime soon.

Schwab gathered $43 billion of net new assets from clients in the first three months of 2013, the most since the first quarter of 2000, and its asset management and administration fees jumped 14 percent to $552 million. Money from client trades, which at one time represented about 60 percent of Schwab's revenue, fell 9 percent to $223 million, or 17 percent of total revenue.

Net income climbed to $206 million, or 15 cents a share, from $195 million, or 16 cents a share, a year earlier. The average forecast of 24 analyst compiled by Thomson Reuters I/B/E/S was 16 cents a share.

Revenue was up 8 percent to $1.29 billion, just above analysts' consensus estimate of $1.27 billion.

The company repeated its forecast from February that it expects earnings per share in the mid-70-cent range for the full year and a pre-tax profit margin of at least 30 percent.

Schwab's profit margin in the first quarter was 25.7 percent. Its return on equity, a key measure of profits it earns on shareholder money, was a sluggish 9 percent.

Retail brokers typically report strong first quarters as clients engage in tax-related trading and investment activities in anticipation of the April 15 deadline for filing their federal tax returns.

Analysts applauded Schwab's asset-gathering momentum, which helped net interest income rise to a record $469 million despite continuing low rates. Net income, however, fell 2 percent from the fourth quarter of 2012, while the firm's money-market fee waivers were the highest in four quarters. Schwab executives previously said they expected quarterly waivers this year to be closer to $135 million, rather than the $140 million to $150 million of recent quarters.

"We think Schwab's franchise is healthy ... but earnings power remains muted given the low rate backdrop," Nomura Securities analyst Keith Murray wrote in a note to clients. Murray kept his "neutral" rating on Schwab stock, with a target price of $15 per share.

Martinetto urged investors to focus on the company's ability to wring income from advisory and managed money products, which provide recurring fee income that is more stable than volatile trading revenue.

The majority of new client money that Schwab now raises comes from "big banks" and "wirehouses," he said, a reference to firms such as Merrill, Morgan Stanley, UBS Wealth Americas and Wells Fargo Advisors.

Schwab has no immediate plans to use its excess cash for share buybacks or dividend increases, he said, noting low interest rates "somewhat diminish" its earnings capability and make it more dependent on capital-intensive deposit-gathering within its bank subsidiary.

Schwab's long-term policy remains to return to investors 20 percent to 30 percent of its earnings.

"As earnings improve we will look at raising the dividend, but not this quarter," Martinetto said.

Shares of Schwab were off 44 cents, or 2.5 percent, to $16.84 in afternoon trading on the New York Stock Exchange.

(Reporting By Jed Horowitz; editing by Sofina Mirza-Reid, Andrew Hay and John Wallace)

By Jed Horowitz