Online Brokers Dominate Index Fund Access in May

The online broker landscape for index funds entered May 2026 with consolidation around a low-cost, execution-focused value proposition. Major retail platforms continue to advertise 0% commissions for ETF and equity trades — a model in place since October 2019 when leading brokers eliminated commissions (New York Times, Oct 2019) — while differentiation increasingly comes from fund inventory, screening tools and ancillary services such as fractional shares and automated rebalancing. Benzinga’s May 5, 2026 roundup of the “Best Online Brokers for Index Funds” highlighted Vanguard, Fidelity, Charles Schwab and a set of digital-first challengers as primary choices for passive investors (Ryan Peterson, Benzinga, May 5, 2026). Institutional behavior and retail flows now reflect a persistent shift to passive products: passive funds comprised roughly 50% of U.S. equity fund assets at year-end 2024, according to Morningstar’s 2025 report. This piece examines the data underlying broker selection for index investing, the economic drivers shaping platform competition, and where the opportunity and risk arc for institutional and large-scale retail investors alike.

Context

The removal of commissions in late 2019 set a baseline price expectation that has endured into 2026, forcing brokers to pursue revenue via order flow, margin lending, subscription services and product shelf differentiation. That 2019 inflection point is a clear structural datum: Charles Schwab’s commission cut in October 2019 catalyzed industry-wide price moves and reset customer expectations for free execution (NYT, Oct 2019). Since then, cost-of-access has migrated to other areas — including average expense ratios of widely used passive vehicles and platform-level fees for features such as tax-loss harvesting or advisor services. For institutional investors picking custodians or for large retail clients scaling into index exposures, the choice is therefore less about per-trade cost than about total cost of ownership, which includes fund expense ratios, lending economics, cash sweep terms and execution quality.

Market structure and product innovation have layered complexity on top of that base. The ETF ecosystem has expanded well beyond core S&P 500 and total-market exposures to include smart-beta and tax-managed wrappers, and some brokers now maintain curated “no-transaction-fee” mutual fund lists numbering in the hundreds. These product shelves matter: Vanguard and Fidelity remain competitive because of vertically-integrated fund manufacturing and low average expense ratios for flagship index offerings, while brokers like Interactive Brokers emphasize execution and margin economics for larger portfolios. For comparative research and platform selection we redirect readers to our internal primer on index funds and platform evaluation frameworks, which we maintain and update monthly.

Geographically, the U.S. market continues to lead in passive penetration, but European platforms are catching up with zero-commission pricing and expanded ETF lineups. Regulatory and tax differences — for example, differing withholding tax regimes on cross-border ETFs — remain an underappreciated component of custody choice for institutions that operate multi-jurisdiction portfolios. Brokers that can offer competitive local-currency ETF access while minimizing tax inefficiency will capture more flows from international investors over the next 12–24 months.

Data Deep Dive

Benzinga’s May 5, 2026 summary lists industry-leading brokers by feature set and fund access, noting differences in fund counts, fee schedules and platform tools (Ryan Peterson, Benzinga, May 5, 2026). To quantify the landscape: as of December 2025 the passive share of U.S. equity fund assets was approximately 50% (Morningstar, 2025 report); the removal of per-trade commissions in October 2019 is an inflection point frequently cited as the catalyst for accelerated passive adoption (NYT, Oct 2019). In terms of product-level costs, the largest S&P 500 ETFs from dominant providers reported median expense ratios near 0.03% as of December 2025 (provider disclosures, aggregated by Morningstar). Those numbers frame the cost discussion: trading is free in most cases, so fund expense ratios and ancillary platform fees become the marginal decision variables.

Customer-facing metrics further illuminate why brokers compete on product depth. For example, platforms that offer >1,000 index and ETF options or a no-transaction-fee mutual fund list of 300–500 funds provide materially different portfolio construction choices versus brokers with narrower shelves. Execution quality metrics — measured by effective spread, price improvement and fill rates — display variation across order sizes; institutional-size index buys (>$100,000 blocks) still benefit from broker choice, with premium execution and program trading available at lower per-share implicit cost through execution algos and dark-pool access. We maintain a comparative matrix on execution metrics and fund inventories on broker fees and execution for institutional reference.

Flows data underscore platform relevance: net flows into passive mutual funds and ETFs were positive for each year from 2018 through 2025, and while absolute inflows slowed in 2024–2025 compared with the pandemic-era surge, the structural trend toward passives remains intact. That persistence increases the strategic importance of custody and platform-level features such as API access, direct indexing capabilities, and tax-management tools, which are now differentiators beyond headline trading costs.

Sector Implications

For asset managers, the continued client preference for low-cost index funds compresses margins on commoditized products and increases the value of intellectual-property-driven offerings. Vanguard’s vertically integrated model and Fidelity’s scale allow them to sustain sub-0.10% expense ratios on many core domestic index mutual funds, pressuring smaller managers to specialize or compete on service. Brokers that double as asset managers (Vanguard, Fidelity) derive cross-sell advantages in retirement and advisory segments, while execution-focused platforms (Interactive Brokers, TradeStation) monetize ancillary services such as clearing and lending.

Broker consolidation and product shelf curation also affect ETF liquidity and secondary-market efficiency. Concentration of assets in a smaller set of ETF tickers can reduce effective spread for the largest ETFs (e.g., VOO, VTI) but raises concentration risk in event-driven scenarios. Larger ETFs cited by provider disclosures consistently exhibit daily average volumes in the billions of dollars and sub-penny average spreads as of 2025, which benefits institutional execution for core index exposures; however, niche index ETFs still show materially wider spreads and lower depth, which can increase implicit trading costs for sizable orders.

From a competitive standpoint, fintech entrants offering direct indexing or fractional-share-enabled robo-advisory services exert pressure on legacy brokers to enhance digital tools. The platforms that win in 2026 will be those that combine low-cost access (0% commission execution), wide product shelves (thousands of ETFs and mutual funds), and advanced portfolio features such as tax-loss harvesting at scale. Institutional investors should therefore vet custodians not only on headline pricing but on operational execution, API reliability and the economics of cash sweep arrangements.

Risk Assessment

The principal risk to passive-dominant broker strategies is regulatory and market-structure change. For example, a policy change affecting payment-for-order-flow economics or a shift in best-execution obligations could materially increase execution costs for brokers that rely on retail order flow to subsidize other services. Historical precedent exists: regulatory reviews post-2020 highlighted transparency concerns in execution economics, and any substantive rule change would alter broker P&L models and potentially raise effective trading cost for some clients.

Another operational risk is concentration of assets in a limited set of ETF and mutual fund tickers. Large inflows into a narrow set of ETFs (the largest S&P 500 and total-market funds) create systemic exposure to severe liquidity stress if market microstructure breaks down during a liquidity shock. While the biggest ETFs have deep primary and secondary markets, institutional investors executing large blocks still need execution strategies to avoid market impact and to manage timing risk.

Finally, product risk should not be ignored. The proliferation of index-based strategies increases the probability of overlapping exposures — multiple ETFs and mutual funds tracking economically similar indexes, sometimes with different factor tilts or sampling methods. For institutional portfolio managers, failure to account for subtle differences in index methodology can lead to unintended style drift and tracking error relative to benchmark objectives.

Outlook

Over the next 12 months we expect competition to sharpen around non-price features: API reliability, institutional custody terms, direct indexing roll-outs and expanded tax-management toolkits. Brokers will continue to advertise 0% commission as a baseline (the industry norm since October 2019), but product differentiation through software and services will command premium pricing for high-net-worth and institutional customers. Passive adoption is unlikely to reverse; Morningstar’s data through 2025 show passive funds holding roughly half of U.S. equity fund assets, a share that has grown meaningfully over the prior decade and is expected to tick higher as younger investors and defined-contribution plans favor low-fee options.

M&A remains a plausible catalytic channel. Smaller brokers or niche product providers lacking scale on fund manufacturing and distribution could become acquisition targets for larger custodians seeking to expand product shelves and technology stacks. Any transaction that meaningfully changes market share among distribution channels for index funds would be read by institutions as a signal to re-evaluate custody terms and execution arrangements. For readers evaluating platform changes, our institutional checklist at passive investing outlines the vendor due diligence items we recommend tracking.

Macro volatility and a possible repricing of risk assets will test execution models and the resiliency of asset-concentration assumptions. Should market liquidity deteriorate, institutional investors will revert to execution pathways that emphasize algos, block trading desks, and negotiated OTC arrangements — areas in which execution-focused brokers currently tout comparative advantages.

Fazen Markets Perspective

Our contrarian view is that headline zero-commission pricing has peaked as a competitive battleground and that the next five years of differentiation will be won by platforms that can monetize advanced features without undermining core fiduciary economics. In practice, this means firms that provide robust direct-indexing, corporate-action management, and institutional-grade API performance will capture disproportionate share of large accounts despite charging fees for those value-adds. The mass of retail accounts will continue to prefer simple low-fee ETFs, but institutional flows — and high-net-worth segments — care more about operational certainty and bespoke tax solutions than per-trade cost.

We also see an underappreciated opportunity in tax-aware index products. As taxable assets grow and investors demand after-tax return optimization, managers and brokers that deliver transparent, scalable tax-management features via direct indexing or bespoke ETF wrappers will command higher retention and pricing power. That dynamic favors vertically integrated managers who can combine low expense ratios with advanced portfolio engineering and tax services.

Finally, investors should not conflate low headline costs with low total cost-of-ownership. Interest-rate environments, securities lending programmes, and cash sweep rates materially affect realized returns for large cash balances and margin utilizers. Our recommendation for institutional evaluators is to model total economics over multi-year horizons, including revenue offsets from securities lending and margin, when comparing custodians.

Frequently Asked Questions

Q1: How have broker fee models evolved since 2019, and what does that mean for institutional investors?

Since October 2019 the industry-standard elimination of per-trade commissions shifted broker economics toward payment-for-order-flow, margin and subscription revenue. For institutions this means trading decisions are more sensitive to execution quality and to the custody economics for large cash balances; low headline trading fees do not eliminate the need to negotiate favorable clearing, lending and settlement terms. The historical shift in 2019 is documented by major outlets (NYT, Oct 2019) and is a useful benchmark when assessing broker fee evolution.

Q2: Are expense ratios the only meaningful ongoing cost to consider when choosing a broker for index funds?

No. Expense ratios are a core component, but institutional investors must also consider implicit trading costs (spread and market impact), custody and settlement fees, securities lending terms, and the opportunity cost of cash sweep rates. For taxable investors, tax efficiency delivered via direct indexing or tax-managed funds can have an outsized impact on after-tax returns. Our proprietary checklist for evaluating total cost of ownership is available to institutional clients and includes line-item templates for modeling these variables.

Bottom Line

Zero-commission trading is table stakes in May 2026; platform choice now hinges on fund shelf depth, execution quality and tax/operational services that materially affect total cost of ownership. Institutional evaluators should prioritize custodians that combine low fund costs with demonstrable execution and tax-management capabilities.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.