Retainer Deposit and Use: Addressing State Bar Concerns
Three simple ways to help keep track of your retainer management.
For several years I taught a course at Golden Gate Law School on solo and small firm management. One of the most popular assignments I gave to my students was to ask them to read the monthly discipline reports in California Lawyer magazine. This wasn’t just a matter of grizzly entertainment, but instead a very useful guide on how to avoid committing malpractice or getting dinged by the State Bar for misconduct.
I encourage each of you to do the same, and you will be struck by how often the issue of non-refunded retainer payments lands a lawyer in hot water. The applicable rules here are pretty simple: unless the client has expressly agreed to a nonrefundable retainer, any unused portion of the advance payment must be promptly returned to the client, whenever the services are complete or the client terminates the relationship.
There are several ways to keep close track of your conduct, so you can be assured that you don’t run afoul of ethics rules.
Get Fee Agreements Signed
It really is essential that you have a signed fee agreement with every client. Granted, it can be a real bother at times, and you sometimes have to be a bit of a nudge, nagging your client to sign and return the fee agreement. I can’t pretend to have a 100% track record when it comes to running this race, but it’s something I always try to do, and rarely fail to do.
Another point to keep in mind: a signed agreement isn’t just a matter of documenting both party’s intentions. It also forces you and your client to focus on what the actual arrangements are about retainers, and keeps you on track when it comes to honoring your commitments.
Manage Retainer Payments Carefully
Be very careful in how you manage the billing with regard to advance payments. There should be a clear chain of documentation and ledger entries, starting with the payment of the retainer, proceeding to the issuance of the bill, and only then followed by the payment from the retainer account. I also make sure that my invoices state how much is left as a credit in the retainer, if I am paying the bill from the retainer. If you are keeping any advance payments in your business checking account, this should only be for a short time, since your attorney-client trust account is the right place to keep retainer payments over a longer duration.
Email can work wonderfully in this territory. I use it to notify clients of what is being billed, I send them copies of invoices by email, and I ask them to confirm that I can withdraw funds from the retainer to cover those bills. You also want to be consistent when it comes to your own financial record-keeping and tax reporting: a fee isn’t earned until the work is done, and retained advance payments aren’t taxable income until the invoice goes out.
Customer Client Is Always Right
Never give a client an excuse for contacting the State Bar when it comes to seeking refunds of the unused portion of the retainer account. I make sure that my invoices are clear in stating how much credit is still in the retainer, and when it looks like the work is done I send an email to the client asking if they want me to return what is left in the account or hold it for potential future work. I try to follow the rule that the customer is always right.
For example, just last month I was contacted by a former client, who wrote that there was $60 left unspent in her retainer account. I hadn’t done any work for this client for more than five years, and my records didn’t indicate any such credit, but my check for $60 went in the mail to her the very next day. This doesn’t mean that you never debate a client’s claim that the fees were not well spent or that your work was shoddy—that’s an entirely different matter. But unless there is a serious reason to dispute what the client is saying, put that refund check in the mail promptly and avoid any challenges from a former client.
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.