The era of commission-free trading may be entering a new phase, as U.S. brokerage firms explore charging exchange-traded fund managers distribution fees to offset mounting revenue pressure. According to a recent note from J.P. Morgan, brokers and custodians could soon demand a share of ETF expense ratios, signaling a structural recalibration in a $13.5 trillion market that has thrived on razor-thin margins and scale.

Over the past decade, fintech disruptors such as Robinhood forced a dramatic reset across Wall Street. Zero-commission trading, delivered through sleek mobile platforms, drew millions of retail investors away from traditional brokerages. In response, incumbents slashed ETF trading commissions to zero, transforming low-cost access from a differentiator into an industry standard.

Zero Commissions, Real Revenue Pain

While commission-free trading accelerated investor participation, it also eroded a core revenue stream for brokers. At the same time, investors have steadily shifted assets from higher-fee mutual funds into ETFs, compressing profitability further. For custodians and platforms that historically earned from fund distribution and transaction activity, the combined effect has been financially costly.

J.P. Morgan estimates the U.S. ETF management fee pool at roughly $21 billion annually. If brokers succeed in capturing just 10% to 20% of ETF expense ratios as distribution fees, that would redirect $2 billion to $4 billion a year from asset managers to intermediaries. Such a move would represent a meaningful transfer of economic value within the asset-management ecosystem.

Uneven Impact Across the ETF Industry

The consequences of distribution fees would not be evenly shared. Mega-providers such as BlackRock and Vanguard possess scale, bargaining power, and deep relationships that may allow them to negotiate more favorable terms. For mid-sized managers, however, the pressure could be acute, forcing difficult choices between absorbing higher costs or passing them on to investors through increased expense ratios.

This dynamic introduces a subtle but important risk: the long-running “fee war” that made ETFs synonymous with ultra-low costs could lose momentum. If distribution fees become normalized, smaller issuers may struggle to compete, potentially accelerating consolidation within the ETF industry.

Regulatory Undercurrents Add Urgency

Regulatory developments may further hasten this shift. Potential SEC rule changes that could ease tax-free conversions from mutual funds to ETFs threaten to accelerate asset migration even faster. For brokers already grappling with lost mutual-fund economics, the incentive to secure a new revenue stream grows stronger.

From an investor psychology perspective, this evolution highlights a familiar pattern. Markets often celebrate innovation at the point of disruption, but the longer-term adjustment tends to reassert economic balance. Commission-free trading removed visible costs, yet the system still requires sustainable incentives for intermediaries.

Looking ahead, investors and ETF sponsors alike will need to monitor how aggressively brokers pursue distribution fees and how transparently those costs are disclosed. While the shift may not reverse the dominance of ETFs, it could quietly redefine what “low-cost” investing truly means in the next phase of market evolution.