Abandonment Option
Definition
A clause in a contract that gives one or both parties the right to withdraw from the agreement at will, usually without limitation and without penalty. This is particularly common in contracts between financial advisers and their clients. An abandonment option is an example of a real option.
Example
Example 1:
Biodun hires a financial adviser in Lagos to manage his investment portfolio. In their contract, there is an abandonment option stating that either party can end the relationship at any time without paying a penalty. Six months later, Biodun is unhappy with the returns and simply walks away, no lawsuits, no exit fees, no drama. The clause protected him from being locked in.
Example 2:
A wealthy client in London signs an agreement with a wealth management firm. The contract includes an abandonment option, meaning the client can pull out all his funds and terminate the relationship at any point without facing penalty charges. When the firm’s performance drops, he exercises this option and moves his money to a competing adviser, cleanly and without legal consequences.