Most investors know what they pay their financial advisor.
Far fewer know how much their financial institution may be making from them.
An advisory fee may be the most visible cost of the relationship, but it is not necessarily the only way a brokerage firm, bank, or affiliated company generates revenue from your assets. Depending on the platform, firms may make money through lending, proprietary products, revenue-sharing arrangements, and other parts of the financial infrastructure surrounding your account.
One of the easiest places for that economics to go unnoticed is cash.
When cash accumulates inside a brokerage account, it usually does not simply sit there. It is typically moved automatically—or “swept”—into a designated cash vehicle.
That sounds like a minor administrative detail.
It can be worth thousands of dollars.
Imagine you have $100,000 sitting temporarily in cash. Maybe you sold an investment. Maybe you are preparing for a home purchase. Maybe your advisor is waiting to reinvest it.
At many brokerage firms, that cash may be swept into a bank deposit program rather than a higher-yielding money market fund or another available cash alternative. FINRA has specifically warned investors that bank sweep programs can pay substantially less than money market funds.
And that difference matters because your cash is not just an idle asset.
It can also be a source of revenue for the institution holding it.
Your Cash Is Valuable to the Firm
Banks make money from deposits. They can use those deposits as a source of funding for loans, securities, and other interest-earning assets.
There is nothing inherently wrong with that.
The conflict begins when the institution deciding where your cash goes can make considerably more from one option while you earn considerably less.
That is not a theoretical concern.
In January 2025, the SEC charged Merrill Lynch and two Wells Fargo advisory firms over their cash sweep practices.
According to the SEC, bank deposit sweep programs were the only cash sweep option for most advisory clients at those firms. Merrill Lynch, Wells Fargo, or their affiliates received a significant financial benefit from the cash deposited into those programs.
During periods of rising interest rates, the difference between what those bank sweeps paid and other available cash-sweep alternatives approached four percentage points.
The firms ultimately agreed to pay a combined $60 million in civil penalties, without admitting or denying the SEC's findings.
Four percentage points may not sound dramatic.
So put dollars behind it.
Suppose you have $100,000 in cash.
At a 0.50% yield, you earn:
$500 per year.
At 4.50%, you earn:
$4,500 per year.
That is a $4,000 difference.
You will not see a $4,000 charge on your statement.
No invoice arrives.
Nobody labels it a fee.
You simply never receive the money.
That is one of the most effective ways costs can hide in financial services: instead of taking money out of your account, the system quietly prevents money from getting into it.
And You May Still Be Paying an Advisory Fee
Now add another layer.
Many advisory firms charge their percentage-based advisory fee on cash sitting inside the managed account.
So imagine that same $100,000 position is also subject to a 1% advisory fee.
You earn $500.
You potentially give up $4,000 of interest relative to another cash alternative.
And you pay roughly $1,000 per year for someone to “manage” that asset.
In this hypothetical, the economic difference approaches $5,000 in a single year.
Again, nothing on the statement says:
Cash Management Cost: $5,000
But the dollars are just as real.
And this is where the industry's incentives deserve more scrutiny.
If an institution benefits financially from keeping your cash in a low-yielding sweep option, while you are simultaneously paying an advisor to oversee that cash, whose interests are really being served by leaving it there?
Cash Should Be Managed for the Client, Not the Firm
There can be legitimate reasons to use a bank sweep. FDIC insurance can matter. Liquidity matters. Convenience matters. Money market funds are not bank deposits and do not carry FDIC insurance.
But those are reasons to make an informed decision.
They are not reasons to blindly accept whatever default happens to be most profitable for the institution holding your money.
If you are paying for financial advice, your cash should be managed intentionally.
Why are you holding it?
How much do you actually need?
When will you need it?
What are you earning?
What alternatives exist?
And perhaps most importantly:
Who benefits from the default choice?
At Hanover Advisors, we believe cash is part of the financial plan—not an administrative leftover and certainly not an invisible profit center.
Because sometimes the most expensive fee is the one nobody ever calls a fee.