A client’s ability to mitigate risks is directly limited by their financial resources.
Even the most sophisticated risk strategies, such as diversification, derivatives, or insurance, require financial capacity.
Other Options Analyzed
Age: Impacts risk tolerance but does not constrain the financial ability to manage risks.
Risk aversion: A behavioral factor, not a financial constraint.
Tax implications: Important but secondary compared to affordability.
ICWIM Textbook, Chapter on Investment Constraints: Highlights affordability as the top financial constraint.
Wealth Planning Principles: Discusses practical limitations of risk mitigation strategies.
ReferencesThus, the answer is B. Affordability.
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