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 are the cumulative net earnings or profit of ...
  2. Statement Of Retained Earnings

    A financial statement outlining the changes in retained earnings ...
  3. Retained Cash Flow - RCP

    Retained cash flow includes remaining cash after expenses and ...
  4. Unappropriated Retained Earnings

    Unappropriated retained earnings refers to any portion of company ...
  5. Capital Base

    The term capital base has multiple applications in finance. In ...
  6. Accumulated Earnings Tax

    The accumulated earnings tax is imposed by the government on ...
Related Articles
  1. 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.
  2. Personal Finance

    Do You Know How Your Financial Advisor Is Paid?

    It is important to understand how your financial planner is compensated.
  3. Investing

    8 Investing Fees That You Should Never Pay

    In investment management and financial planning there are a plethora of fees that are unnecessary.
  4. Investing

    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.
  5. Managing Wealth

    How To Optimize Your Portfolio and Reduce Fees

    Investment fees aren't avoidable altogether, but there are strategies investors can employ to keep those fees at bay and reduce the impact on returns.
  6. Investing

    3 Investment Fees That Are Negotiable

    Investment fees are a necessary evil but that doesn't mean they have to be overly costly. There are ways to negotiate some of the expenses down.
  7. Investing

    Are Hidden Fees Eroding Your Participants’ Return?

    Plan sponsors need to know the fees associated with their plan to determine if they are reasonable.
  8. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  9. Investing

    Understanding Investment Fees Is Critical to Success

    Awareness of the different layers of investment fees can help you, as an investor, reduce the fees you're paying and increase your investments.
  10. Investing

    The 5 Types Of Earnings Per Share

    A look at the five varieties of Earnings Per Share (EPS) and what each represents can help an investor determine whether a company is a good value, or not.
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 >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center