Price the hidden costs of a zero-fee IRA before the rollover

Zero-fee IRA advertising gives the client one number to remember: zero. PensionBee Inc.'s new white paper, 'The True Cost of Zero,' supplies the rest of the numbers — and turns that zero into the opening question of a due-diligence conversation for any advisor moving a retirement account.

PensionBee, which charges a monthly fee on its own IRAs, built the model around a $107,000 account balance. The paper estimates that a zero-fee account can carry more than $1,400 a year in structural and operational expenses. Even its low-cost assumptions produce an annual drag of $160 to $340. PLANADVISER first reported the analysis.

Underneath the headline number sit six revenue streams: cash sweep spreads, securities lending income, payment for order flow, fund building blocks, administrative and service charges, and advisory charges tucked into the fine print. The cash sweep has the clearest angle into retirement accounts, because retirement money tends to sit still.

Idle cash in zero-fee IRAs often lands in a low-yield account while the platform keeps the yield. IRAs are 'particularly vulnerable,' PensionBee writes, citing Vanguard research that nearly 30% of rollover cash remains uninvested for at least seven years. Providers typically use one of two sweep models: bank deposit accounts, where the platform retains the spread between the bank's rate and the client's rate, or in-house money market funds, where the platform earns a management fee on the swept balance. The money market route returns more to savers, in PensionBee's analysis — yet providers have been drifting toward bank deposit sweeps.

Put those observations together and the sweep becomes concrete. A $107,000 rollover can leave roughly 30% of the balance in cash. That is about $32,000 sitting in the sweep. At a 3.5-percentage-point spread, the annual cost is above $1,100. That comes from one revenue stream, before the other five are added, and it never shows up as a line item on the client's statement.

PensionBee founder and CEO Romi Savova says plan sponsors should keep the same math in mind with automatic rollovers. “We’ve seen cash spreads upwards of 3.5%, which is a hidden fee that the plan sponsor might not be aware of,” she told PLANADVISER.

The same math applies beyond the individual account. When a plan merger or consolidation sends balances into a new IRA arrangement, the sponsor picks the default destination. If that product routes cash through a wide sweep spread, the cost lands on participants who never made an investment decision.

For an advisor, the paper is less a verdict on any individual provider than a checklist for rollover due diligence. Where will uninvested cash sit, and what will it pay? Does the platform lend client securities, and does the client share in the revenue? What administrative or service charges sit outside the fund expense ratio? Is the advisory fee on the page or in the footnotes?

The rollover is where these questions matter most. A 401(k) moving into a zero-fee IRA arrives as cash unless the client has already picked an allocation. If nothing is chosen, the sweep is running from day one, and the cost grows the longer the cash sits. PensionBee's model gives the advisor a way to attach a dollar figure to that gap before the account moves.

The paper's own remedy for individuals is simple: stay invested and “reap most of the return.” For fiduciary advisors, the translation is a cash policy — know the sweep, know the spread, and put a deadline on investing rollover money. The same questions belong in an annual custodian review, not just at account opening. For a client whose rollover check is already sitting in cash, the first step is to find out what it is earning today.