What is a 'Retainer Fee'

A retainer fee is an upfront cost incurred by an individual in order to pay for the services of a consultant, freelancer, lawyer or something similar. A retainer fee is most commonly paid to individual third-parties that have been engaged by the payer to perform a specific action on his behalf. These fees, almost always paid upfront, only ensure the commitment of the receiver, and they do not guarantee an outcome or final product.

BREAKING DOWN 'Retainer Fee'

A retainer fee is an advance payment that's made by a client, usually to a lawyer, that is considered a down payment on the future services rendered by the lawyer. Regardless of occupation, the retainer fee funds the initial expenses of the working relationship. For this reason, these types of fees usually remain in a separate account from the hourly wages of the consultant, freelancer or lawyer. This ensures that money isn't used for personal purposes before the services are fully performed.

The most common form of retainer fees applies to lawyers, who in most cases require potential clients to provide an upfront retainer fee. For example, a lawyer may charge a $500 retainer fee. If she charges a total of $100 an hour, the retainer covers all of her services, up to the five hour limit. The lawyer bills the client for the cost of any additional hours she invests on behalf of the client. In this example if a trial case takes 10 hours of the lawyer's time, the lawyer charges the client an additional $500, or $1,000 in total, including the retainer. If the client's case is resolved prior to reaching the five hour limit, the lawyer can refund the remaining retainer amount to the client.

Earned Retainer Fees Versus Unearned Retainer Fees

An unearned retainer fee refers to the initial payment of money that is held in a retainer account prior to anyone earning them. Retainer fees are earned once services have been fully rendered. In the example above, the retainer is considered unearned until the court case is closed and finalized. These unearned fees do not belong to the person performing the tasks, in this case the lawyer, until work actually begins. Any unearned retainer fees that are not used can be returned to the client.

Earned retainer fees, on the other hand, refer to the portion of the retainer that the lawyer is entitled to after work begins. Earned retainer fees may be granted to the lawyer bit by bit, depending on the amount of hours worked. Distribution of retainer fees can also be based on tasks or milestones. After the lawyer completes the pre-trial process, for example, he may receive 25% of his retainer.

RELATED TERMS
  1. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
  2. Statement Of Retained Earnings

    A financial statement outlining the changes in retained earnings ...
  3. Appropriated Retained Earnings

    Any unappropriated retained earnings that are specifically not ...
  4. Exchange Fees

    A type of investment fee that some mutual funds charge to shareholders ...
  5. Clearing Fee

    A fee charged by a clearing house for its services. A clearing ...
  6. Service Charge

    A type of fee charged to cover services related to the primary ...
Related Articles
  1. Investing

    Evaluating Retained Earnings: What Gets Kept Counts

    A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information.
  2. Financial Advisor

    Where Do Lawyers Earn the Most Money?

    Lawyers earn much higher wages working in certain industries, states and metropolitan areas. Learn the best-paying sectors and locations.
  3. Retirement

    Find the Best Social Security Lawyers: Here's How

    A good Social Security lawyer may make the difference between qualifying for disability benefits and being left out in the cold.
  4. Retirement

    Top 3 Tips to Find an Estate Planning Lawyer

    Having an estate plan is essential. Here are some tips on how to find an estate planning attorney to help you put one in place.
  5. Retirement

    How a 1% Annual Fee Can Ruin Your Nest Egg

    What kind of impact does an annual 1% fee have on your portfolio? The answer may surprise you.
  6. Financial Advisor

    How to Talk Fees with Clients

    Talking about fees with clients is not always a fun discussion. Here's the best way to go about it.
  7. Financial Advisor

    Are Fees Eating Up Your Nest Egg?

    You may not be able to avoid all fees associated with retirement planning, but you should know what you’re being charged for. Here's a list of common fees.
  8. Financial Advisor

    Are Financial Advisor Fees Too High?

    Fees charged by financial advisors run the gamut. Are you getting a fair deal or paying too much?
  9. Investing

    A Guide To Investor Fees

    Fees are one of the most important determinants of investment performance and something that every investor should know.
  10. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
RELATED FAQS
  1. How are retained earnings related to a company's income statement?

    Understand what a company's statement of retained earnings represents and how it is related to a company's other financial ... Read Answer >>
  2. Which transactions affect the retained earnings statement?

    Retained earnings are the portion of a company's income that management retains for internal operations instead of paying ... Read Answer >>
  3. How do you calculate retained earnings per share?

    Research the amount of retained earnings per share compared over time to understand whether or not a company uses its profits ... Read Answer >>
  4. What's the difference between retained earnings and revenue?

    See why retained earnings and revenue are both considered important measurements of a company's financial performance, and ... Read Answer >>
  5. How is revenue related to retained earnings?

    Learn what business revenue is and how it relates to retained earnings. See how accountants calculate these key figures and ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center