A retainer agreement is a standard financial arrangement in many professional service fields, particularly in legal and consulting practices. This model requires a client to pay a sum of money upfront to a professional to secure future services and time. This initial deposit acts as a promise of payment for work to be done, rather than a final fee for service.
Defining the Active Retainer
The concept of an “active retainer,” often termed an “evergreen retainer,” is a specific type of advance fee deposit held by a professional on behalf of a client. This deposit is not a payment for access to the professional, but rather a pool of funds against which future hourly charges are billed. The active status refers to the requirement that the client must consistently maintain a certain minimum balance in this account throughout the engagement. This minimum threshold ensures the professional always has a source of payment for work recently completed or currently in progress.
The professional draws down on the active retainer balance as time is recorded and services are rendered, typically through an hourly billing structure. This deposit remains the client’s property until the professional has formally earned the funds by performing the work and issuing an invoice for their time.
How Funds Are Managed and Replenished
Funds for an active retainer are handled with strict financial and ethical guidelines. The money is deposited into a separate, designated client trust account, distinct from the professional’s general operating account. Because the service provider has not yet performed the work, the funds are considered “unearned” and belong to the client while they reside in this trust account.
The depletion process occurs when the professional issues a periodic invoice, often monthly, detailing the time spent and services provided. The corresponding amount is then transferred from the client trust account into the firm’s operating account, and the funds are officially considered earned. The defining mechanism of the active retainer is the replenishment requirement, triggered when the balance in the trust account drops below an agreed-upon minimum amount.
Once the balance falls beneath this set threshold, the client is promptly notified and must deposit additional funds to restore the retainer to the original amount. This replenishment process keeps the retainer “evergreen” or “active,” ensuring the financial reservoir is continually maintained for the duration of the engagement. Any funds remaining in the trust account at the conclusion of the work must be returned to the client.
Active Retainers Versus Flat Fees and Security Deposits
Active retainers differ significantly from other common payment structures, such as flat fees. A flat fee is a single, predetermined charge for a specific, defined scope of work. The professional generally earns the flat fee upon receipt or completion of the task, and it is usually non-refundable regardless of the exact hours spent. In contrast, an active retainer is a fluctuating deposit against billable hours and is fully refundable if unearned.
The active retainer also serves a different purpose than a typical security deposit. A security deposit is money held to guard against potential damage, loss, or default on a contract, and it is not intended to be drawn down for services rendered. The money held in an active retainer is a direct prepayment for future services, designed to cover professional fees as they accumulate. This distinction is based on the funds’ purpose: one is a working credit for services, and the other is a safeguard against failure or damage.