By Jed Horowitz

NEW YORK (Reuters) - Some U.S. brokerages are grappling with unexpectedly weak stock trading by retail clients this year, eroding commission revenue and clipping the flow of new money into fee-based accounts.

Although TD Ameritrade Holding Corp (AMTD.N) and other discount brokerage firms said earlier this month that their clients traded heavily in January and early February, executives at brokerage giant Wells Fargo Advisors and regional firm Stifel Financial Corp (SF) are less optimistic.

After the S&P 500 stock index gained almost 30 percent last year, hopes soared in the brokerage industry that clients would abandon bank accounts and bond investments yielding low single- digit returns in favor of stock investing.

"The handoff to 2014 was expected to be strong," Stifel Chairman and Chief Executive Ron Kruszewski told analysts Monday after the St. Louis-based broker-dealer reported a 20.8 percent jump in fourth-quarter net income on strong investment banking income. "However, the handoff at this point appears to be, at best, a limp handshake."

Trading commissions at Wells Advisors' private client group, the third largest U.S. brokerage firm, are down by more than 14.5 percent so far this year from the comparable 2013 period, group president David Kowach wrote in a memo that was reviewed by Reuters.

Commissions that were "a really big driver" of success last year have missed budget this year by about $2.6 million, he wrote to the firm's almost 11,000 brokers last week. In an indication of client wariness about stocks, cash balances in their brokerage accounts of $112 billion are "about the highest level I can remember," wrote Kowach, a 21-year veteran of the securities industry.

"It seems the market volatility in early 2014 has some clients in wait-and-see mode," he concluded.

Wells and other big brokerage firms have also been encouraging clients to shift from transaction-oriented commission accounts to fee-based accounts that produce revenue regardless of trading activity or market direction.

Wells has opened more than 154,000 fee-based accounts since January 2013 with an average opening balance of more than $230,000, Kowach wrote. However, money flowing into the accounts this year is lower than in the comparable period of 2013, Kowach wrote.

At Stifel, which has almost 2,100 brokers, clients are investing more heavily in bonds than stocks, despite rock-bottom rates on most fixed-income investments, said Kruszewski. The executive, who has been aggressively building Stifel through acquisitions, doesn't expect much change in direction going forward.

Stocks are "fairly valued" after their meteoric rise last year, he said. Investors also may be spooked by this year's roller coaster ride as U.S. shares plummeted in late January, then recouped most of their value this month.

Asked to explain the comparatively heavy client trading volume being reported this year at TD Ameritrade, E*Trade Financial (ETFC) and Charles Schwab Corp. (SCHW), Kruszewski said the firms tend to attract more active traders than Stifel. Many may be day traders who try to capture small differences by buying and sell stocks when prices are volatile, he said.

At Cadaret, Grant & Co., a Buffalo, New York-based broker-dealer that services about 930 independent stockbrokers, client activity has been strong this year even though most are relatively conservative middle-class investors, said company president Arthur Grant. Revenue from bond investments is up 21 percent from the same period a year aqo, mutual fund trading is up 23 percent and individual stock trading revenue is down five percent.

"Cash balances are high, but there is a gradual realization that stocks are the place to be among the retail public," said Grant.

The mixed message on stock trading has been echoed in mutual fund flows.

Stock funds attracted $18.1 billion of new cash in the two weeks ending February 11, but had lost about $20.9 billion in late January, according to Thomson Reuters' Lipper service.

Wells's Kowach reminded brokers that in the current iffy environment, their best bet is to count pennies. "We've...done a good job in the first month of managing our expenses, which is smart business when you are unsure of the markets early in the year," he wrote.

(Reporting By Jed Horowitz; Editing by Meredith Mazzilli)