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Due Diligence is More Important Than Retainer
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Published in Wisconsin Law Journal on 2/17/11

One of the first goals for lawyers opening a new firm is to get as many clients as possible on a retainer basis, as many see the certainty of a retainer as the Holy Grail for fee collection. Retainers set up a fixed-fee-per-time cycle (often monthly), in which client funds deposited in a trust account are drawn upon during a year or other designated period. Retainers can be a one-time payment to guarantee the future availability of the lawyer and/or firm, or a deposit against future services.

Retainers offer the security of knowing the amount and timing of cash flow into the firm, because the client is not paying by the hour. The disadvantage is that the client may require more services than the retainer amount would equal at an hourly rate. To the extent allowed by market forces and consistent with rules of ethics, this can be addressed by increasing the retainer amount to cover a substantial portion of the initial phase of the work. The goal is to stay ahead of the client by having a sufficient amount in the trust fund to bill against until computation of the final billing. Send the client monthly statements on the amount withdrawn so there is no question about what is owed for a final billing.

But being on retainer has ethical concerns. Accepting a retainer from a client means that work is promised in exchange for that fee. Failure to perform the work requires a refund of the retainer unless it is split between a nonrefundable portion and a trust account deposit to be drawn as the work is performed.

For the latter, specify the event or date that is the trigger for allowing funds to be withdrawn from the trust account and placed into the general account. It is essential to do this because when the fee is earned it must be withdrawn. To do otherwise is to commingle trust and general funds, which is an ethical violation.

Such complexities raise the question of whether retainers are really that essential. Failure to get a retainer from prospective clients should not eliminate the desirability of representing them if you have done due diligence on the client’s willingness and ability to pay, and document both in the initial engagement agreement.

Due diligence investigation is a step that too many lawyers neglect, and can be as simple as requesting a credit report from one of the consumer credit agencies or from a business credit reporter like Dun & Bradstreet.

Once it is clear that prospective clients can pay, a signed engagement stating the terms and responsibilities for payment attests that they will pay. Clients who cannot or will not sign a fee agreement or pay a retainer, or who want to start now and pay later, should all be suspect. If the client takes offense at such detailing, respond by saying that this client should find other counsel because the requirement to pay is not negotiable.

For both firm and client, building an ongoing relationship is the goal whether matters are billed with or without a retainer. A relationship built on trust and loyalty creates confidence that the lawyer will be there when needed; which, after all, is what a retainer affirms.


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