Many Canadians have recently become alarmed at the state of their investments. That’s probably because of the new CRM2 rules from Canadian Securities Administrators. Starting with your December 31, 2016, investment statement, you now see two vital pieces of information: your personal rate of return and the total fees in dollars that your adviser’s firm charged you for its services. \nCheck your statement. How does it look? Are you happy with the results? If so, don’t change a thing. If not, read on. \nIf you are still reading, chances are you have mutual funds sold to you by a financial adviser (who is often just a salesperson) to make your retirement dreams come true. This is usually a mistake. I have written books, articles and currently give courses on the reasons why. But you’ve probably just seen two of the key ones — lousy returns and high fees. \nWhat are the alternatives to expensive mutual funds sold by a salesperson? Well, you could use a full-service investment dealer/broker that can invest in stocks, bonds and exchange-traded funds (ETF), etc. If you can find a good one willing to take you on, this is probably the best option. You get professional, independent advice and hopefully better returns than an index ETF. \nOr you could do it all yourself using a discount brokerage account. If you like to minimize fees and are willing to handle all the details, this is your best bet. Or you could get an artificially intelligent (AI) computer to handle everything by using a robo-adviser. Let’s see if a robo-adviser might be the answer for you. \nOWNERSHIP \nMost robos are run by people with experience in the investment industry. Some are backed by larger financial institutions. For example, Bank of Montreal operates BMO SmartFolio and Power Financial has an ownership interest in Wealthsimple. \nINTERACTION \nWhen you deal with a robo, while it uses AI computer algorithms for the investing activities, it is run by people so if you have questions, you can always talk or chat online to a human. \nACCOUNT SIZE \nAbout half of the 11 robos in operation have no minimum account size. Many others require a minimum investment of $5,000. This makes them ideal for people just starting out who can’t find an investment dealer/broker to take them on. \nHOW THEY WORK \nWhen you open your account, you will be asked a series of questions online to determine your personal circumstances, goals and risk tolerance. An AI computer program will then select a portfolio to suit your needs. Then, on an ongoing basis, it will automatically re-balance your portfolio to maintain the ideal asset allocation between domestic and international fixed income and equities. Because little human intervention is needed, the fees are kept to a minimum.\nINVESTMENT TYPES \nThe vast majority of robos use low-cost ETFs, but some use mutual funds or pooled funds.\nFEES \nWith any type of investments there are three fees to consider: advice, investment ownership and trading commissions. Most robos charge an annual advice fee of about 0.5% of the average portfolio value, with a reduction in the fee for larger accounts. For example, Wealthsimple manages your first $5,000 for free, charges 0.5% for accounts up to $99,999 and 0.4% for accounts $100,000-plus. The investment ownership costs are included in the management expense ratio of the ETFs they hold for you. In most cases that is about 0.2%. Most robos do not charge trading commissions to buy or sell ETFs as the costs are included in the advice fee. So your total costs are about 0.7% for accounts up to $250,000. That means if your portfolio averaged $100,000, you’d pay about $700 a year.\nLICENSING \nMost robos are licensed as portfolio managers in some or all provinces. This is important because it means they are required to work to the fiduciary standard, meaning they must put the client’s interests first. Remember, many financial advisers are not portfolio managers and are not held to the fiduciary standard. (You can check what type of adviser you have at http://www.securities-administrators.ca under Registration.)\nPORTFOLIO CONTENT \nMost robo portfolios contain between five and 10 ETFs invested in Canadian and international stocks as well as corporate and government bonds.\nCUSTODY OF THE INVESTMENTS \nYour investments actually sit at a third-party custodian that is usually a brokerage firm. Brokerage firms are members of the Canadian Investor Protection Fund, which insures your investments up to $1 million in case your investment firm becomes insolvent.\nIn addition to the low costs of using ETFs, robo-advisers have the advantage of eliminating human emotions, which is one of the main reasons for poor investment results. Humans muck things up by getting scared in a downswing, leading to crystallizing losses, and getting greedy in a rising market, resulting in buying high. The human nature of your adviser, especially if he or she is not held to the fiduciary standard, could lead to decisions about your portfolio that are good for the adviser, but not you. A robot has no emotions and that could be a good thing.