Free ETF trading isn’t free distribution

Can smaller ETF issuers compete in the era of free trading? 

Where I’m from, one of the most popular sayings is “there’s no such thing as a free lunch.” Whenever “we got somethin’ for nothin’,” I vividly recall a family member responding with “somebody’s paying for it!”

When I first started trading and investing, I paid USD29.95 for the privilege of calling my broker on the phone to place a trade. When I started paying USD9.99 to trade online, I felt like I was getting a deal. Now, a commission almost feels like a rip-off, especially if you’re a long-term investor who doesn’t trade in size. 

As it becomes the norm, zero-commission trading may have reduced what investors pay to access ETFs, but it has not eliminated the economics of getting funds distributed. As more ETF buying happens on digital platforms, often through savings plans, commercial relationships between ETF providers and those platforms are becoming another competitive battleground. For smaller issuers already fighting the industry’s biggest brands for assets and liquidity, placement becomes increasingly important.

“There is no single model and commercial arrangements vary considerably depending on the platform and the market in which it operates,” Hector McNeil, co-founder and co-CEO of HANetf, tells ETF Express. “This can range from subsidised trading or arrangements around sharing part of the TER. Some also offer targeted content deals.” 

According to Julius Weller, VP Broker at Scalable Capital, any payments made by ETF providers come from the provider’s own resources and aren’t deducted from client assets. Weller pointed to the firm’s “diversified” model that includes interest and lending, wealth-management/AuM fees, order fees, in-house market making, PRIME+ recurring subscriptions, B2B and its own ETFs. 

“Savings plan orders are aggregated to systematically reduce costs for clearing, settlement, and execution to marginal levels, making zero-commission execution on recurring investments commercially feasible at scale,” Weller noted. He added: “You’ll appreciate that we cannot publicly comment on any contractual relationships we have with partners. We would request that these relationships are viewed as separate from our offer.”

Martins Sulte, CEO and co-founder of Mintos, explains to ETF Express that his company uses a different model.

Sulte says Mintos receives no remuneration from ETF issuers—including distribution or marketing fees, TER sharing or rebates—and that none of its zero-commission ETF trading is subsidised by issuers. “We may not earn on ETFs specifically, but the platform as a whole generates the economics that make it possible to offer them at no cost to the investor,” Sulte says. 

Sulte explains that Mintos’s ETF catalogue comes through its partnership with Upvest, “which means we have no direct relationship with ETF issuers at all.” He adds that “what investors ultimately invest in depends entirely on what they want.” 

The contrast reinforces that there is no single route to zero-commission ETF trading and no evidence that every free ETF transaction requires an issuer somewhere to write a cheque for that transaction. Different platforms can support the economics in different ways. 

For an ETF manufacturer, however, how a broker accounts for the relationship may be less important than the increasing importance of the relationship itself.

“These relationships are increasingly important particularly as more retail investors access ETFs through low-cost brokers and savings plans,” says McNeil. 

Clearly, access to digital channels matters to ETF issuers. That access can, to some extent, affect adoption of their funds. On the surface, this looks like a potential disadvantage for smaller issuers. But, in a nutshell, McNeil says not so fast: 

“While larger issuers have the scale and marketing budgets to establish commercial relationships across multiple platforms and markets, these partnerships can also provide valuable opportunities for smaller and newer issuers. In a market where established providers benefit from considerable brand recognition, paid distribution and marketing arrangements can help newer entrants gain visibility, reach investors they might otherwise struggle to access and compete with much larger players. The question is therefore not simply one of size but how effectively issuers use these relationships to attract investors.”

In other words, paid distribution can be a scale advantage, but, at the same time, established issuers don’t necessarily need to introduce themselves to ETF investors. They’re known entities. Smaller entrants can benefit by building relationships with platforms that help get their names out there. 

In some ways, brokerage apps are becoming the table that showcases the ETF smorgasbord. 

Kenneth Lamont, Principal at Morningstar, offers a useful analogy: “Digital consumers are already accustomed to seeing ‘promoted’ products on platforms ranging from eBay to Amazon. They are also familiar with free-at-the-point-of-use services such as Google Maps, recognising that the cost is often borne in other ways.” 

As Lamont sees it, “Once platforms have met the relevant disclosure requirements in their jurisdiction, they have some flexibility in how they display and communicate commercial arrangements. Ideally, these arrangements would be disclosed clearly at the point of investment, allowing investors to make the most informed decisions.”

Distribution remains a substantial part of European fund economics. The European Securities and Markets Authority (ESMA) found in 2025 that distribution accounted for 48 per cent of the total costs of investing across the UCITS universe. The regulator also found that platforms such as execution-only neobrokers tended to be less expensive distribution channels for investors than traditional banks and investment firms. 

As ETF product fees and trading commissions fall, distribution remains a meaningful economic consideration for issuers.

For smaller ETF issuers, this can resemble the familiar liquidity problem. Investors tend to favour funds with assets and liquidity, but new funds need investors before they can build either. Distribution presents a similar challenge: established providers already have brands investors recognise, while newer issuers need visibility to establish themselves. 

Paid distribution can cut both ways. It adds another expense and potential scale advantage for the ETF industry’s largest firms, while also giving smaller issuers avenues to gain visibility they’d have a hard time achieving organically.

As more ETF investors research, compare and buy ETFs through digital platforms, distribution has become an important part of the competitive equation. For smaller issuers, the challenge goes beyond launching a fund and getting the technical parts in place. It extends to making sure investors know that the fund exists. Forging the right distribution partnerships can go a long way towards making that happen.