UPDATE 4-Schwab profit drops on lower trading, fee waivers

* Q3 EPS 17 cents, in line with Street view

* Revenue falls 19 percent to $1.01 billion

* Waives $78 million in money market fees

* Shares down 5 pct (Adds newly independent advisers, updates stock price)

By Phil Wahba

NEW YORK, Oct 15 (Reuters) - Charles Schwab Corp SCHW.O said quarterly profit fell 34 percent as fee waivers and lower trading by clients weighed on the leading U.S. online brokerage.

The company, whose profit met analysts' expectations, waived $78 million in fees from its money market mutual funds in the third quarter, a bit less than the $80 million it forecast last month.

Near-zero U.S. interest rates have forced the company to waive fees it charges clients in managed funds. Schwab, by far the biggest online broker, also runs a fast-growing bank and offers investment advice.

Chief Financial Officer Joe Martinetto told Reuters, "We are hopeful that if the economy continues to improve that we will see interest rates begin to come up."

He said Schwab remained on track to waive about $200 million of fees for the year.

Sandler O'Neill analyst Richard Repetto said that while the quarterly earnings contained no surprises, Schwab could be forced to continue waiving fees for some time.

"Schwab is highly sensitive to interest rates," Repetto said.

The company earned $200 million, or 17 cents per share, in the third quarter, down from $304 million, or 26 cents per share, a year earlier.

Revenue dropped 19 percent to $1.01 billion.

Analysts on average had expected earnings of 17 cents per share on revenue of $1.025 billion, according to Thomson Reuters I/B/E/S.

Schwab shares were down 5 percent to $18.32 in midday trading on Nasdaq.

STOCK UNDER PRESSURE

Fox-Pitt Kelton said in a research note the stock may be under pressure because of a notice Schwab received on Wednesday that U.S. securities regulators plan to recommend filing civil enforcement action regarding two Schwab fixed income mutual funds for possible securities law violations.

Schwab said on Wednesday that any charges would be unwarranted.

In September, the San Francisco-based company telegraphed some bumps ahead in the form of lower trading volumes and declining short-term interest rates.

Schwab posted third-quarter net interest revenue of $294 million, down 3 percent from the second quarter, hurt by the fee waivers.

Asset management fees were down 24.3 percent. The company counted $20 billion in net new assets in the quarter.

Total client assets rose 5 percent to $1.36 billion, and the company added 52 newly independent advisors during the quarter.

Trading revenue slipped 4.3 percent compared with a year earlier, when Martinetto said trading had reached record levels.

Martinetto said trading volume last month was the second-highest September ever as companies' investment advisers and retail investors jumped in to take advantage of the market rebound.

Trading activity, known as daily average revenue trades, or DARTS, fell 9 percent in the third quarter from a year earlier.

Schwab did not provide an update on its auction-rate securities suit. New York Attorney General Andrew Cuomo has sued the brokerage, accusing it of misleading investors about the safety of the debt. (Reporting by Phil Wahba, additional reporting by Jonathan Spicer; editing by Dave Zimmerman and John Wallace)