A client, Mr. Henderson, aged 68, is retired and relies on his investment portfolio for 70% of his annual living expenses. He has a relatively low net worth but has expressed a desire to leave a substantial inheritance to his grandchildren. Which of the following statements best reflects his primary constraint that should be addressed in his Investment Policy Statement (IPS)?

Question: A client, Mr. Henderson, aged 68, is retired and relies on his investment portfolio for 70% of his annual living expenses. He has a relatively low net worth but has expressed a desire to leave a substantial inheritance to his grandchildren. Which of the following statements best reflects his primary constraint that should be addressed in his Investment Policy Statement (IPS)?

Answer options: ✅ His liquidity needs are high due to his reliance on portfolio income.

• His time horizon is long given his inheritance objective for his grandchildren.
• His legal and regulatory constraints are significant.
• His unique circumstances indicate a charitable giving constraint.

Correct answer: His liquidity needs are high due to his reliance on portfolio income.

Explanation: Mr. Henderson relies heavily on his portfolio for income, indicating a strong need for predictable cash flows from his investments. This makes high liquidity a critical constraint to ensure his living expenses are met without forcing asset sales during adverse market conditions.