Big brokerages are working to boost banking and lending services to their clients, eager for new revenue to offset the squeeze from volatile markets and nervous clients clinging to low-margin bond and cash funds.

Morgan Stanley Smith Barney has hired more than 100 bankers in recent months to offer lending and mortgage services to wealth management clients. The company may increase this number to 500 by the end of 2011, Morgan Stanley spokesman Jim Wiggins said on Thursday.

Morgan Stanley also plans to start making loans in the third quarter to clients who own small businesses, to tap into what the company sees as strong demand for banking and loans.

These moves parallel banking and lending initiatives under way at Merrill Lynch and Wells Fargo & Co. Swiss bank UBS is also is hiring more banking consultants to boost lending in its U.S. brokerage.

When the markets are up, everyone is making money and the focus is on increasing the number of clients and assets, said Scott Smith of Boston-based consultant Cerulli Associates. Now the focus is on increasing the profitability of every relationship.

Merrill Lynch/Bank of America Corp has been aggressive in encouraging Merrill Lynch advisers to refer clients to the bank for mortgages and loans.

On Tuesday, Merrill Lynch management offered advisers a further incentive to cross-sell Bank of America products, according to a Merrill adviser based in the Northeast who asked not to be identified.

An annual bonus that rewards advisers for bringing in new accounts with more than $250,000 of assets will now be expanded to include bonuses for selling Bank of America products. Advisers could earn an extra $40,000 to $50,000, according to the adviser.

Morgan Stanley and UBS are under pressure to match the capabilities of the so-called financial supermarkets Merrill Lynch/Bank of America and Wells Fargo Advisors, said Alois Pirker, research director at Aite Group.

They are the ones setting the tone on cross-selling. There's potential that the others will lose out, said Pirker.

In the first quarter of 2010, Bank of America boasted that 60 percent of Merrill advisers had sold a bank product and advisers had provided more than 7,100 referrals to the commercial bank.

Companies need to tread carefully and heed the lessons from Citigroup Inc and Smith Barney's failed attempt to integrate their brokerage and commercial bank businesses, said Smith. Advisers and bankers traditionally fought hard to protect their own territory, he said.

Advisers have also expressed worries that if a client has a bad experience elsewhere in the company, their relationship will suffer.

The Merrill adviser, not authorized to speak with the press, said he has concerns about his company's cross-selling push. Clients who used to get business loans through a Merrill Lynch unit in Chicago now are steered to Bank of America.

My clients aren't dealing with the same credit person that they knew and went to lunch with, the adviser said. Now we're a big organization.

Merrill Lynch/Bank of America did not return calls for comment.

(Reporting by Helen Kearney; Editing by Steve Orlofsky)