Lawyer Retainers: Definition, Purpose, and Ethics
Lawyer retainers are often the subject of confusion and misunderstanding for clients and attorneys alike. However, as your client’s legal representative, it’s important to be well-informed and transparent about how retainers work to protect both parties and promote a positive client experience.
In this article, we'll explore what is a legal retainer, explain how they work, and share why attorneys should use them at their firm. We'll also give you best practices for implementing retainers to ensure a smooth process and increased client satisfaction.
What Is a Retainer for a Lawyer?
A retainer for a lawyer is a fee paid upfront by the client to secure the services of an attorney. It essentially "reserves" the time and expertise of a lawyer, making them accessible to the client for an agreed-upon time. The amount of the retainer fee can vary and may be a flat fee or an hourly rate.
In short, a legal retainer serves as a guarantee that the lawyer will be available to work on the client's case and provides peace of mind that the client has dedicated legal representation when they need it.
Why the Definition of a Retainer Is Often Misunderstood
The definition of a legal retainer is often misunderstood due to the many terms that are used interchangeably, such as "lawyer retainer," "advance payment retainer," and "lawyer retainer agreement." This can lead to confusion about what a lawyer retainer actually is and how it works in practice.
Additionally, retainers can vary greatly depending on the specific circumstances of a case, the attorney's fee structure, and the final agreement between the client and the lawyer. Without a clear understanding of the definition and purpose of a retainer, it can be difficult for legal professionals to effectively use them in their practice. It also can lead to confusion and dissatisfaction among clients.
To have a clear understanding of the appropriate use of retainers in the legal field, let's review each of the terms most often associated with them.
Our previous section uses the correct definition and application of a lawyer retainer. In this setup, a client pays upfront to "reserve" access to an attorney's services. This fee is deposited into a trust account and remains there until the lawyer has earned it.
If there are still available retainer funds after the work has been completed, the remaining balance is returned to the client.
Now, here is where it gets tricky.
Some large firms equate a retainer to an “entry fee.” This is not the same thing.
Entry fees simply get you in the door of a legal firm. They’re typically a flat fee that a client pays to guarantee that the firm will handle their legal needs, but it does not pay for the actual cost of the legal services. This distinction is what sets apart a “retainer” disguised as an entry fee from the true function of a retainer.
Notably, this interpretation of a retainer payment is non-refundable to the client. It should also not be deposited into a trust account because it is the law firm's money upon receipt.
Advance Retainer Payment
While it may seem like semantics, using the correct definition is crucial to abide by state and local regulations. Some states, like Texas and California, use the former definition (to reserve a lawyer’s time and the use of a trust account), while other states, like Florida, use the latter definition (entry fee that is not deposited into a trust account).
To avoid confusion, we recommend using “advance retainer payment” to indicate the purpose of the client’s deposit. We also recommend verifying the working definition of “retainer” within your home jurisdiction to understand how it applies to your firm.
Lawyer Retainer Agreement
Additionally, you have a lawyer retainer agreement. This contract outlines the terms and conditions of the working relationship between a client and a lawyer. It ensures that both the client and lawyer have a clear understanding of the expectations and responsibilities of each party.
Unlike the lawyer retainer, which is simply the fee to retain the attorney’s availability in advance, the lawyer retainer agreement includes all the details of the work to be performed.
Let’s look at some fundamental items to include in your agreement.
Components of a Lawyer Retainer Agreement:
- Services to be provided
- Duration of contract
- Attorney per-hour rate
- Billable costs to the client
- Payment schedule
While the above list is an example, legal retainer agreements are most effective when tailored to the client and the case.
You may also see this type of contract referred to as an “attorney fee agreement” or “legal services agreement.” Download our sample attorney fee agreement for a template to use at your firm.
How a Lawyer Retainer Works
When a client pays a retainer fee, the lawyer agrees to take on the client's case and provide legal services during the agreed-upon period. This fee is held in a trust account, which can be drawn upon as the attorney provides legal services to the client. Lawyers are not automatically entitled to money from a retainer fee until they have earned it through proof of necessary payment.
As retainers are used to pay for legal services, there will be a natural decline of the trust account balance. Attorneys can navigate a diminishing retainer balance in one of two ways:
- Once the balance hits zero, the attorney may switch to billing hourly or request another deposit.
- Include an evergreen retainer clause within the original fee agreement to avoid ever reaching a zero-balance account.
In the second option, an evergreen retainer clause outlines when a client must replenish funds and by how much. This model essentially "tops off" the original retainer amount as funds are expended.
For example, if you have a $4,000 retainer agreement, you may include an evergreen clause that says once the balance reaches $1,500, the client will deposit an additional $2,500 into the account.
In both scenarios (with and without an evergreen clause), any unused portion of the fee remaining after the legal services have been completed is refunded to the client.
Why Should Lawyers Use a Retainer?
Lawyers use retainers for a variety of reasons, but let’s look at the top three benefits of implementing them at your firm.
Guaranteed Payment for Attorneys
One of the main benefits of using an attorney retainer is that it provides lawyers with a certain amount of guaranteed payment. A retainer is like insurance. Even though it is not intended to cover the entire cost of the services rendered, it does ensure that the lawyer is compensated for some of their time spent working on a case.
Peace of Mind for Clients
For clients, a retainer provides peace of mind that they have dedicated legal representation and that their attorney will be available to work on their case. This provides a level of assurance to the client that they will have the legal help they need when they require it.
Protection for Both Parties
Using a retainer is an effective means of establishing trust between the attorney and client while protecting both. The client trusts the attorney to safely hold their funds until rightfully earned, and the attorney trusts the client to uphold their financial obligations should the initial retainer fee be exhausted. Furthermore, each party is protected by the terms of the retainer agreement should a conflict arise.
Best Practices for Lawyer Retainers
Attorney retainers can be a powerful tool for managing the cost of legal services, but to use them effectively, it's important to follow best practices when offering them at your firm.
Let’s look at the three most impactful ways to use retainers for an improved client experience and greater opportunity for referrals.
Communicate With the Client
Clear communication is key when it comes to retainers. Lawyers should discuss the retainer in detail with their client, explaining how it works, how much it costs, what it covers, when fees are replenished, etc. Setting clear expectations and responsibilities from the get-go will ensure that the client fully understands the agreement and has the confidence to move forward with your legal services. It also creates a seamless experience as you work on their case and helps to prevent any negativity-inducing surprises.
Set Different Pricing Tiers
Lawyers can set different pricing tiers for their retainers to offer clients more flexibility. For example, they can offer a basic retainer that covers a set number of billable hours or a more comprehensive retainer that covers all services provided. This allows clients to choose the level of coverage that best meets their needs and budget.
For help setting your firm’s rates, our Law Firm Billing Guide discusses which factors to consider and other billing practices that promote transparency with clients.
Clarify How You Prefer To Be Paid
It's also important to clarify how you prefer to be paid, whether it be by check, credit card, or digital methods. This will help to ensure that payment is processed smoothly, and that the retainer is replenished as needed.
If you use e-billing for law firms, like LawPay, your payment preferences can be offered to clients for seamless payments, fast processing, and easy reconciliation.
Improve Your Law Firm’s Retainer Management with LawPay
To streamline the retainer process and prevent trust account violations, legal billing software can ensure your law firm makes the most out of your retainer agreements while upholding IOLTA compliance.
At LawPay, we've built our legal payment processing platform to do just that.
We're committed to keeping you compliant while making it easier than ever to accept retainer fees, schedule payments, track your firm's cash flow, and more.
For more information, schedule a demo today!