Trying to understand what my custodian actually does for the fee

Nobody will stop you. That's the actual answer and it's the thing that took me longest to accept when I started reading about these.

A custodian for a self-directed IRA is required because the code says an IRA has to be held by a qualifying custodian, and they do the administrative parts: title in the name of the custodian for the benefit of your IRA, moving cash you direct, keeping the records, handling the annual valuation reporting. They are the plumbing.

They are not a compliance check. Most of them say so in writing exactly the way yours does, and the responsibility for not doing a prohibited transaction sits entirely with you as the account holder. If you tell them to wire IRA money to buy a house from your brother, a lot of them will process it, and the consequence lands on your account, not theirs. The consequence is the scary part, because a prohibited transaction can disqualify the whole IRA and turn it into a taxable distribution.

So the fee buys you the legal structure and the paperwork. The judgment layer you buy separately, from a CPA or an attorney who has actually worked on these, and that's the expense I'd budget for alongside the custodian fee rather than instead of it.

One practical thing: ask them how long a funding request takes end to end. Mine quoted several business days, and that matters a lot if you're ever under contract with an earnest money deadline.