The Cynic’s Solution to Owning Bank Stocks

Royal Bank of Canada (TSX:RY)(TSX:RY) is the latest big bank to get its hand caught in the cookie jar. For those who can’t trust them, here’s a perfect way to profit without playing favourites.

In a noble gesture, Royal Bank of Canada (TSX: RY)(NYSE: RY) announced on June 27 that it had reached a no-contest settlement with the Ontario Securities Commission that will see it repay $21.8 million in investment fees it inadvertently overcharged customers in recent years.

It seems the big banks in Canada have all become very good at two things: overcharging customers, and I’m not just talking about investment fees, and cutting wage costs to the bone.

If you read the CBC’s coverage of the latest bank oversight, do yourself a favour and read the comments. There are a lot of cynical Canadians out there when it comes to the big banks — I’m one of them.

Honestly, investing in the big banks is almost as sinful as investing in big tobacco. Only, in the case of the cigarette companies, they’re a lot more transparent.

I’m being facetious, of course.

Couldn’t we replace the banks with something better? There’s that Bitcoin thing, but it’s not going to last. I guess we’re stuck with them.

If you can’t beat them…

As investments go, I favour two of the Big Six banks: National Bank of Canada (TSX: NA) and Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM). But as businesses go, I’m not a fan of any of them.

“One banker talking to another banker,” commented a CBC reader June 27. “’They caught us. What do we do now? Raise the fees! That will teach them!’”

That pretty much sums up the Canadian banking experience.

However, and I’ve written about this before on the Fool, Canadians feign disgust with the banks and then turn around and invest in them. The expression, “Do as I say, not as I do,” comes to mind.

But, reality being what it is, saving for retirement comes first regardless of one’s feelings toward the banks.

Here’s the solution

Back in September 2016, I recommended investors interested in owning Canadian bank stocks should buy the BMO S&P/TSX Equal Weight Banks Index ETF (TSX: ZEB).

My rationale was simple.

If you can’t figure out which of the six is going to outperform from one year to the next, you’re better off buying ZEB and letting the equal-weight ETF do its thing.

Well, there’s a second reason to own ZEB — one that’s especially applicable to cynics like me.

You see, we all have customer service horror stories at one or more of the Big Six banks. Human nature being what it is, a bad experience at Royal Bank, for example, leads to it being put on the “Never Invest” list.

As the insurance salesmen Ned Ryerson said in the movie Groundhog Day, “Am I right, or am I right, or am I right … right … right?”

But seriously, if you have a problem with one or more of the big banks, the ZEB is the perfect solution, because you don’t have to play favourites. Every six months, all six stocks are rebalanced back to their original equal weighting.

You can do this yourself with the six stocks, but it’s virtually the same cost to have them do it and much less time consuming.

Bottom line

If you can’t stand the banks, ZEB is the way to go.

Fool contributor Will Ashworth has no position in any stocks mentioned.

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