A retainer represents an upfront payment made by a client to a professional, such as a lawyer, consultant, or marketing agency, to secure their future services. This financial commitment formally initiates the professional relationship. By paying a retainer, the client gains assurance that the professional will reserve time and resources for their matter. The arrangement provides the professional with a measure of financial security before work begins.
Defining the Retainer Fee
A retainer fee is primarily a deposit designed to secure the professional’s commitment and availability for a specified period or project. This payment establishes the formal relationship, such as the attorney-client privilege, confirming that the professional will take on the client’s work. The fee acts as a promise that the professional will not accept conflicting work.
It is important to understand the difference between a retainer and a flat fee, which are often confused. A retainer is typically an advance against future hourly billing, meaning the client pays for the professional’s time as it is spent. Conversely, a flat fee is a single, predetermined payment that covers the entire scope of a specific service, regardless of the hours the professional spends on the task. Unlike a flat fee, which is earned upon completion of the service, a retainer is generally considered unearned until the work is actually performed.
Different Structures of Retainer Agreements
Retainer agreements are structured to meet various client and professional needs, primarily falling into two distinct categories. The most common structure, particularly in legal matters, is the advance payment retainer. Under this arrangement, the client places a lump sum into a dedicated account, and the professional draws down from this balance as they complete billable work.
The second structure is the general retainer, which functions as a fee for guaranteed availability rather than a deposit for specific future work. This type involves a periodic fee, often monthly or quarterly, paid simply to keep the professional on call. This ensures the professional’s expertise is accessible for consultation or immediate action, making it common for businesses requiring continuous, on-demand advisory services.
How Retainer Funds Are Utilized
When a professional receives an advance payment retainer for services not yet rendered, the funds are not immediately considered earned income. The money is typically deposited into a special client trust account, which keeps the client’s money separate from the professional’s operating funds. This segregation prevents “commingling” of funds and maintains the integrity of the client’s deposit.
The professional tracks their time and expenses, generating an invoice for the work completed during the billing cycle. Only after the work has been performed and the client has been properly invoiced is the corresponding amount officially withdrawn from the trust account and transferred to the professional’s operating account as earned income. If the professional relationship ends before the entire retainer is used, any remaining unearned balance must be refunded to the client.
When Professionals Require a Retainer
The decision to require a retainer is often based on the complexity, duration, or high-stakes nature of the anticipated work. Professionals usually request an upfront retainer for matters expected to be lengthy or have an unpredictable scope, such as complex litigation or large-scale consulting projects. The advance payment provides assurance that the professional’s time and resources will be compensated throughout the engagement.
Retainers are also necessary when a client requires the professional’s immediate and ongoing availability. By securing a general retainer, corporate clients or high-net-worth individuals ensure they have prioritized access to expert advice without the delay of negotiating a contract at the onset of every new issue. This practice is a way for professionals to manage their workload and secure compensation for reserving their capacity.