Passive Income or Passive Risk? The Hidden Trade-Offs of Neobroker Securities

If you have opened a trading app on your phone recently, you have probably seen the same promise repeated like a mantra: invest easily, invest cheaply, invest passively.

Zero-commission trades. Fractional shares. “Earn while you sleep” features like securities lending. It all feels modern, frictionless and, above all, cheap.

But as BETTER FINANCE research keeps reminding us, in financial markets, “cheap” is rarely the same thing as “cost-free”. And “passive income” can sometimes quietly come bundled with something far less comforting: passive risk.

Neobrokers have done something genuinely important: they have opened the doors of investing to millions of Europeans who were previously locked out by high entry costs and traditional banking complexity.

But as BETTER FINANCE has repeatedly highlighted in its work on retail market structures, the business model is not charity. It is architecture. And that architecture often hides costs in places retail investors do not immediately see.

Even when you are not paying an explicit trading fee, costs can still appear through:

• the execution price you actually get (the spread between buying and selling prices),

• limited trading venues,

• and revenue mechanisms built into the platform.

In other words: you may not see the bill, but it is still being paid somewhere.

This matters because the psychological effect of “free trading” tends to encourage something dangerous for long-term investors: over-trading. And as both regulators and consumer organisations note, more trading usually means worse outcomes, not better ones.

One of the most heavily marketed features in modern neobroker apps is securities lending, often described in glowing terms as earning extra yield on shares you already own.

BETTER FINANCE research flags this as a key area where innovation and complexity collide.

Here is the simple version:

When you “lend” your shares, they can be used by other market participants, often for short selling. In return, you receive a small share of the revenue.

Sounds harmless. Even clever.

But the trade-offs are rarely front and centre:

• You may temporarily give up certain shareholder rights (like voting in AGMs).

• Your shares may need to be recalled before you can sell or vote.

• You are exposed, however small the probability, to counterparty and operational risks.

• The structure of the arrangement is often not intuitive for non-professional investors.

BETTER FINANCE’s position is not that securities lending is inherently bad. It is that it should never be presented as “free money” without equally visible disclosure of what is being given up in exchange.

Because “passive income” only exists in marketing. In reality, there is always a trade-off balance sheet, even if it is not shown in euros.

One of the more subtle changes in the neobroker era is not just what investors are buying, but what they are becoming.

In traditional investing, most retail investors think of themselves as owners of assets.

In newer digital models, especially when features like securities lending or fractional ownership are layered in, the investor can also become:

• a liquidity provider,

• a data generator,

• and sometimes a source of monetisable balance-sheet efficiency for the platform.

BETTER FINANCE has warned that this “retailisation” of infrastructure functions blurs the line between investing and platform participation.

You are still an investor, but also part of the system that makes the business model work.

For decades, the key argument was simple:

Active management = high fees, often poor net performance
Passive investing = low fees, closer to market return

BETTER FINANCE has consistently shown that high fees are one of the most reliable predictors of weaker long-term outcomes for retail investors.

But neobrokers have changed the conversation.

Today, the question is no longer only: “How much does it cost?”

It is also: “How is the platform paid, and what incentives does that create?”

Because even if commissions fall to zero, revenue does not disappear. It shifts into other channels:

• order routing economics,

• spread-based execution,

• securities lending programmes,

• and ancillary monetisation features.

The result is a more complex ecosystem where the headline fee is no longer a reliable guide to total cost.

It is important not to swing too far the other way.

BETTER FINANCE and many independent studies have consistently supported the idea that passive investing, especially low-cost diversified index investing, remains one of the most effective tools available to retail investors.

And there is strong evidence that high-cost active management struggles to justify its fees over time.

But “passive investing” does not mean “passive consequences”.

Markets are dynamic. Index structures evolve. Platforms adapt their monetisation models. And retail investors are often the last to see how these changes affect them in practice.

If there is one practical takeaway from BETTER FINANCE’s work, it is this: focus less on slogans, more on structure.

When using neobroker platforms, ask:

• Where does the platform make its money if trading is “free”?

• Am I opting into securities lending, and what am I giving up?

• Do I understand how my orders are executed?

• Are there behavioural nudges encouraging frequent trading?

• What is the real all-in cost of holding, not just buying?

These are not theoretical questions. They are the difference between genuinely low-cost investing and quietly redistributed costs.

Neobrokers have democratised investing in Europe in a way that deserves recognition. They have lowered barriers, simplified access, and brought a new generation into capital markets.

But BETTER FINANCE research makes one thing clear: access without transparency can create a new kind of imbalance.

“Passive income” sounds reassuring. But in financial markets, income rarely appears without structure, and structure always comes with risk.

So the real question is not whether neobroker investing is good or bad.

It is this: Are you earning passive income, or unknowingly accepting passive risk that was never clearly priced in?

For retail investors across the EU, that distinction is becoming one of the most important financial literacy challenges of this decade.