I'm not exactly sure how they can afford to do this with such a low commission (perhaps the company is selling you full/fractional shares out of their own inventory at a mark-up to pocket the difference?), but The Motley Fool has an article on a new ETF-alternative, where there is a ZERO annual expense ratio!:
Will This Start-up Kill the ETF Revolution? (BLK, DLTR, ETFC, STT, WMT)
Basically, this company offers pre-defined ETFs with portfolios listing what stocks they own - or, you can make up your own customized ETF with any stocks. The catch (and a HUGE MAJOR
downside): in order to have a zero expense ratio, apparently you are buying each individual stock in that ETF as an individual purchase, rather than buying just X shares of an S&P 500 ETF (for example). So if you bought their S&P 500 "ETF", you would effective be buying 500 individual positions!!!
The good side: you can pay just a very small transaction for each security for a widely diversified portfolio.
Still, a very interesting concept. Assuming long-term, if there is a way to very simply track all of those transactions, it would be a huge challenge to ETF managers.