An active retainer is a financial arrangement used by professional service providers, most commonly in legal and consulting fields, to secure payment for future work. It functions as an advance deposit paid by the client before services are rendered. This initial payment establishes a financial commitment, ensuring funds are available to cover hourly fees and expenses as they are incurred throughout the engagement.
Defining the Active Retainer
An active retainer, often called a security retainer or an advanced fee deposit, is money that belongs to the client until the professional earns it. The defining characteristic is that the funds must be placed into a separate, regulated trust or escrow account, strictly segregated from the service provider’s general operating funds. This holding method ensures that the client’s money is protected and cannot be spent by the firm before the specified work is actually completed. Ethical and legal guidelines require this segregation, making the deposit a temporary financial buffer.
How Retainer Funds Are Used and Tracked
Utilizing an active retainer requires detailed and transparent tracking of all time and expenses. Professionals record their time in small increments, often as short as six minutes, for every activity performed on the client’s behalf. These records are compiled into a periodic invoice, typically sent monthly, detailing the services rendered and corresponding fees. Upon approval, the exact amount of earned fees and incurred costs is transferred from the client’s trust account into the professional’s operating account. Clients receive regular statements providing a full accounting of all transactions, including the beginning balance, deductions, and the remaining balance.
Distinguishing the Active Retainer from Other Fee Structures
The distinction between an active retainer and other fee agreements centers on the ownership of the funds prior to the work being completed. A key difference is the general retainer, sometimes referred to as an availability retainer. This type of retainer is paid periodically to secure the professional’s availability for a specific period, regardless of whether any actual services are performed. Since the general retainer is paid solely for the reservation of time, it is considered earned immediately upon receipt and is not held in a trust account.
Another separate concept is a security deposit, which is typically a non-refundable payment against potential damages or future costs. In contrast, every dollar of an active retainer is held in trust and must be refunded if unearned. The active retainer is a prepayment for services, while the general retainer is a payment for access or availability. This means the client maintains ownership of the active retainer funds until the work is performed and billed against the account.
Replenishment, Refund, and Conclusion
The life cycle of an active retainer involves clauses that manage the ongoing balance and the final disposition of funds. Many agreements include an “evergreen” clause, which requires the client to replenish the retainer to its original level when the balance drops below a predetermined minimum amount. This replenishment ensures a continuous funding source, preventing interruptions in service while work is ongoing.
Upon the conclusion of the professional engagement, a final accounting of all services rendered and costs incurred is performed. If any funds remain in the client’s trust account after all outstanding invoices have been paid, the professional is ethically and legally obligated to promptly refund the entire unearned balance to the client.