The financial system reforms imposed by the Dodd-Frank Act will likely result in a broad range of increases in the cost of financial services products.
Similar to Sarbanes-Oxley, the regulatory costs of the legislation will ultimately be passed along to the buyers of financial services.
This applies to both institutional players and consumers, but it is likely that consumers will suffer more on a relative basis because of their lack of buying power.
As reported in National Underwriter, derivatives--a key focus of the recent financial reform legislation--will likely increase in cost. This is particularly the case with longer-dated equity derivatives that are used by many insurers:
- The legislation increases the capital requirements for these derivatives.
- This increases the cost of holding higher capital reserves will be passed along to the buyer.
- Derivatives provide part of the raw materials that make-up annuities, so insurers are natural buyers of these derivatives.
- The insurers will pass part or all of this additional cost along to their buyers--the end consumer.
Source: National Underwriter
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