Advisers Can Expose Hidden IRA Fees and Cash Drag

PensionBee’s Aug. 12 report, “The True Cost of Zero,” found accounts that appear fee-free can include multiple layered charges. On a $107,000 IRA balance, the report estimates hidden costs of roughly $1,400 a year, made up of 0.98% for fund building blocks, 0.30% from a cash sweep spread, 0.25% for an advisory or manager fee, 0.16% from payment for order flow and 0.06% from securities lending.

The firm said pricing in financial services is often split into several components rather than shown as a single all-inclusive fee, which can make true costs hard to spot. Romi Savova, founder and CEO of PensionBee, wrote that financial advisers have the bandwidth to review those elements and explain them to clients.

The report identified cash drag as a widespread issue. Nearly 30% of savers keep rollover funds in cash for seven years or longer, during which time those balances do not participate in the market. PensionBee noted platforms may profit from interest spreads on swept cash while account holders hold idle balances.

PensionBee highlighted that the IRA market’s growth is driven largely by rollovers, which leaves a substantial amount of assets exposed to cash sweep programs. The report said some providers automatically sweep idle balances into money market funds or similar vehicles, while others do not. PensionBee cautioned that money market and cash-like products can still carry fees but typically yield some return and are preferable to leaving assets entirely uninvested.

Financial advisers and wealth managers can act at rollover and onboarding to reduce stretches of uninvested cash and to examine fee schedules, custody practices and pricing structures. The report recommends reviewing retirement account statements so investors pay only for the level of service they receive.

Metuchen, New Jersey-based Tenon Financial, founded by Andy Panko, wrote in a client newsletter that the firm limits idle cash in client accounts and moves funds into stock or bond positions or into a money market fund when appropriate. The report lists trading costs, administrative fees and complex pricing arrangements as other sources of unexpected charges and encourages advisers to compare custody and cash-management options for clients.