For

Charles Schwab

(SCH)

, success is becoming a matter of trust.

Figures released Tuesday show that Schwab, the online broker that's trying to shed its discount image, is already reaping the benefit of this year's $2.7 billion acquisition of private banker

U.S. Trust

. Schwab pulled in more than twice as many assets during the quarter as Wall Street behemoth

Merrill Lynch

(MER)

, which is nearly twice Schwab's size.

That the gains came despite a trading slowdown sparked by tech-stock turbulence is notable. Even amid a 24% drop in trading volume, once its bread-and-butter, Schwab gained $37 billion in net new assets. Merrill, by contrast, showed a much-smaller $18 billion gain, as a decline in initial public offerings took its toll on asset-gathering.

Those numbers are important because they illuminate a notable trend. Wall Street firms are increasingly seeking to cut their reliance on unpredictable revenue sources, such as trading, and to find more dependable sources, such as fees generated by accounts of the wealthy. Accordingly, investors Tuesday applauded Schwab's success, sending its stock up 2.5%. Merrill stock slid 2.8%.

Good Buys

The numbers show that Schwab's recent acquisitions are working, analysts say. Challenged by low-priced online-trading firms and high-priced adviser-oriented institutions, Schwab bought both daytrading firm

CyberCorp

and a trust company during the quarter.

"It's definitely a positive for Schwab because they were able to continue, relative to the Merrills of this world, to gain more assets," says Rich Repetto, an analyst for

Lehman Brothers

. His firm hasn't underwritten for either company.

Being competitive with Merrill and other firms like

Morgan Stanley Dean Witter

(MWD)

is important for Schwab, because bricks-and-mortar brokers have cut commissions to attract the retail investors who have gravitated toward low-cost online brokers. When Schwab bought U.S. Trust, it said it hoped to cut the number of wealthy investors leaving because it didn't offer high-end service.

Broader Spectrum

The gain in assets despite the stock-trading drop-off shows that Schwab is appealing to a broader range of investors, Schwab Chief Financial Officer Chris Dodds said.

Assets under management, which generate revenue in the form of interest income, asset-management fees and mutual fund fees, accounted for more than half of Schwab's revenue during the last quarter. That led to earnings per share of 9 cents, including charges, down from 22 cents in the first quarter. The company's 14 cent-per-share operating earnings were in line with expectations.

With the rush by the big players to offer across-the-board service, some smaller players have begun to suffer for lack of heft.

Donaldson Lufkin & Jenrette

(DLJ)

unit

DLJdirect

(DIR)

, for instance, reported Tuesday that net customer assets fell slightly, to $27.5 billion from $29.4 billion at the end of last quarter. And the decline in trading volume is hurting some of these less-diversified players: DLJdirect suffered a wider-than-expected, 6-cent-a-share loss, as U.S. average daily trades fell a steeper-than-expected 35%. DLJdirect shares slid 9.6%.

But Russell Keene, an analyst for

Keefe Bruyette & Woods

, isn't worried about the decline, because trading volumes on the

Nasdaq

have picked up this month. "In a way, the second quarter is history and people are looking forward," Keene says. "The realization that we were faced with a second quarter that was a lot weaker than the first is just a reason for some people to sell." Keefe Bruyette & Woods hasn't done any underwriting for any of the firms mentioned in this article.