When Choosing a Retainer Option, 4 Types Stand Out
In general, there are four basic types of retainer payments, and the rules are different for each one.
In general, there are four basic types of retainer payments: prepaid fees (also known as an advance payment), a security deposit retainer, a replenishing retainer, or a “true” retainer. It’s essential that you are clear with your client as to which form of payment you are asking for, as the rules are different for each retainer type.
Prepaid fees are the simplest form of advance payment. You are simply estimating what the cost of the service will be, and you’re asking your client to pay for it in advance. If it’s a fixed-rate task such as the preparation of a will, the prepaid amount will be the total amount. If it’s a limited-scope hourly-rate task such as drafting an agreement, the prepaid amount should be your best estimate of the likely fees, subject to a refund or an additional bill if the actual amount differs. The rules of professional responsibility mandate that you are only allowed to take possession of this money when you perform the work. For this reason, the proper thing to do is to hold the funds in your attorney-client trust account, and only distribute the money to your business account when you have performed the task. That said, if the work is going to be done within a few weeks of when the payment is received, it is probably an acceptable practice to deposit the funds directly in to your business account—but don’t withdraw them and deposit them in a personal account or spend them until you have completed the tasks. It’s crucial that you remain prepared to issue a refund if the client cancels the work or not all of the fees are incurred, as the failure to promptly reimburse unused prepaid fees can lead to serious State Bar disciplinary action.
Security Deposit Retainer
By contrast, a security deposit retainer is a sum of money paid to you that you hold in your attorney-client trust account, and only draw on if your client fails to pay their bill in full. Most lawyers draft their fee agreement to provide that the deposit can be applied to the final bill, released to you when the bill is sent to the client upon the completion of the work. But until that happens, the retainer payment must be kept in your trust account, as it isn’t “your” money yet. You will need to explain to your client that the interest on the account is paid to the State Bar to help fund indigent legal services, which is why there will be no interest paid to the client on the retainer amount, unless a special retainer account with interest is opened up for this particular client. With a security deposit retainer, the amount charged is typically one or two months of the typical or expected amount of fees to be incurred.
When I was a litigator, I preferred to ask for a replenishing security deposit instead of a security deposit retainer. With this method, I would bill against the retainer and pay my fees out of the trust account each month. Then, whenever the retainer account became depleted, I asked my clients to replenish it with another agreed-upon payment. With this method, I typically would ask for three or four months’ worth of fees to be paid into the account, so that I’m not hounding them for a refill every single month. This approach is a bit cumbersome, as you have to keep track of the monthly payments from the retainer account and then deposit the client’s additional retainer payments on a regular basis. But it ensures that you will get paid, and it gives the client a clear sense of what the work is costing on an ongoing basis.
Finally, there is the option of the “true” retainer, which is a nonrefundable payment, paid to the lawyer up front as compensation for the lawyer’s availability to handle the matter. Typically this is only done where the lawyer’s willingness to take on the case is itself a significant commitment, wholly apart from the hours spent on the legal work involved. The two arenas where this frequently arises are family law disputes, where consulting with the client precludes representing the other party in the matter (since you don’t want to be conflicted out based upon a short consultation), and criminal defense work, where signing up to serve a client is a significant commitment and nonpayment is rarely a justification for ceasing one’s representation. In these instances you are allowed to charge a separate fee for your retention in addition to your hourly rate, and this true retainer need not be refunded at the conclusion of the representation so long as the fee agreement makes this clear to the client. Keep in mind, however, that any fees charged to clients must be reasonable and not unconscionable, and this standard applies to nonrefundable retainers as well.
Given these concerns, most lawyers view the true retainer as a minimum payment, and not as an entirely additional fee. They will still insist on keeping the entire amount regardless of the outcome of the representation, but along the way, they will apply the money to the fees incurred, and only retain as additional payment the unspent portion of the retainer. I agree with this approach and I encourage you to always apply the retainer payment to the actual fees for your services. Charging a large fee on top of your hourly rate just doesn’t seem fair to me, and probably won’t seem fair to your clients as well.
Frederick Hertz, an attorney and mediator based in Oakland, has managed his practice for more than 25 years.
"The Art of Getting Paid" is a one-year series of blog posts that provides a comprehensive training to lawyers on how to get paid.
We welcome your questions and comments – and of course, your suggestions on how to master this insufficiently respected aspect of practicing law.