By John McCrank

NEW YORK (Reuters) - The U.S. Federal Reserve's pledge to keep interest rates at rock-bottom levels until late 2014 undercuts what little confidence Main Street investors have in the markets, Charles Schwab Corp's chief executive said on Tuesday.

In addition to pushing out the next interest rate hike by 18 months, Fed Chief Ben Bernanke said last week that the U.S. central bank was ready to offer more stimulus to help shore up the economy. [ID:nL2E8CODR8]

"The Fed's actions have been just an enormous destroyer of consumer confidence," said Walt Bettinger, head of Schwab - one of the biggest U.S. brokerages and financial services companies, with about $1.68 trillion in client assets.

Bettinger said keeping rates low for an extended time was like a doctor continuing to ply a recovering patient with the same level of medicine as when the patient was on his deathbed.

"But for any of us who have ever had surgery in our lives, the first thing the doctor tells you when you're out of the woods in terms of whether you're going to make it or not is, 'get out and start moving around,'" he said. "It's time for the Fed to let the patient walk the halls."

From a company perspective, the near zero rate environment has led Schwab, along with its competitors, to collectively waive billions in fees on money market funds because the low rates being paid could result in negative returns to clients if fees were charged.

Further, shrinking net interest-rate margins (NIMs) due to the low rates have sapped profits and were largely responsible for a 34 percent drop in Schwab's share price last year.

"We're not going to overreact to that," Bettinger said, adding that the company's earnings power has actually increased in the last several years, when stripping out the rate picture.

"We're going to be fine over a longer-term horizon. I worry a lot more ... that if we don't ever get consumers and investors feeling that there's something to be optimistic about, that has implications that go way beyond Schwab's NIM and Schwab's stock price."

INVESTORS LOW ON CONFIDENCE, HUNGRY FOR ADVICE

Retail investors' confidence has been rattled by volatile markets and daily headlines on Europe's debt crisis. But they are not bailing on the markets and are hungry for advice, according to a Schwab survey to be released on Wednesday.

Of the more than 1,055 investors polled in the quarterly Schwab survey, 26 percent said they feel better off financially than they did a year ago - down from 44 percent in the survey a year earlier.

The majority, or 62 percent, said they preferred investing potential new assets, as opposed to putting their cash into savings accounts or paying off debt, while 13 percent moved to the sidelines in response to the recent market volatility.

"We haven't seen investors really pulling out of the market," Bettinger said. "They are just not sure what to do, so they're sitting tight."

Only one-third of the investors said they feel confident in their ability to make investment decisions.

Bettinger said that means greater demand for advice. Of the more than 3 million households with accounts at Schwab, about one in six had a face-to-face meeting with a Schwab investment consultant. Bettinger said the conversations mainly revolved around risk.

Schwab has about 1,100 financial consultants that meet with clients. It also provides back-office services to around 7,000 registered independent investment advisers.

The company, which started mainly as a discount broker, has evolved into an advice-based business. Newly enrolled accounts in its advisory programs grew by 10 percent in 2011.

Assets in its advisory programs added more than $1.5 billion in new assets each month last year on average, ending 2011 at $109 billion in total.

Bettinger said that a more sobering statistic is that while three-quarters of investors say they would feel more confident getting some investment advice from a professional, only one in ten actually do.

That underscores a lack of trust in financial institutions among investors and ultimately, the financial industry itself.

"That's a real trust gap." Bettinger said. "This is the defining issue that faces our industry, that firms have to be able to either address and recover that trust, or run the risk of becoming irrelevant."

(Reporting By John McCrank; Editing by Walden Siew, Gary Hill)