Scenario 44: When developing investment recommendations, a financial planner must assess a client's risk tolerance. Which of the following is an example of an objective measure of risk capacity?

Question: Scenario 44: When developing investment recommendations, a financial planner must assess a client's risk tolerance. Which of the following is an example of an objective measure of risk capacity?

Answer options:

• Client's stated comfort level with market volatility
• Client's historical investment behavior during downturns ✅ Client's ability to absorb investment losses without jeopardizing financial goals
• Client's preference for growth over income

Correct answer: Client's ability to absorb investment losses without jeopardizing financial goals

Explanation: Risk capacity is the objective ability to take on risk, which is determined by factors like financial resources and time horizon, rather than subjective preferences or feelings. The correct answer is "Client's ability to absorb investment losses without jeopardizing financial goals". This capacity-fill scenario 44 reinforces the same competency for the cfp bank and follows the certified explanation standard.