James and Lyman do an excellent job of outlining the advantages and possible disadvantages of ETFs. Please read both responses. Some additional points:
1. Custodial broker dealers are now offering transaction free ETFs. TD Ameritrade our custodian offers about 100 ETF that trade with no transaction fee. Generally the transaction free trades need to be held for a period of time to remain transaction free when sold. This is done to discourage day trading with these ETFs. These no transaction fee ETFs allow you to dollar cost average the purchase of these securities similar to some index mutual funds.
2. The question is pros and cons of ETF vs. mutual funds (not index mutual funds). Actively traded mutual funds accomplish different goals than passive index ETFs. Generally actively managed mutual funds do not perform as well as their indexes. Nerdwallet has a headline article to the effect that only 24% of actively managed mutual funds outperformed their benchmark indexes. Each year there are many actively managed mutual funds outperforming their benchmarks. The problem is that from year to year it is different mutual funds outperforming. Therefore it is very difficult to find those funds.
3. With fees having such a large impact on performance the fees charged by actively managed mutual funds are much higher and when combined with your financial advisors fees can result in underperformance vs. a comparable portfolio of passive index ETFs.
4. Similar to mutual funds, new ETFs are being created at a rapid pace generally following popularity trends. Be careful of the latest trends.
5. There are some good research tools available in the ETF and index area such as www.indexuniverse.com. Also there are some good paid subscription websites.
6. Not all indexes are created equal. Be aware of what you are purchasing. Open up the box and compare the different indexes in each asset class you want to own.