The Attorney's Guide to Retainer Agreements and IOLTA Compliance

Two Types of Retainers — Two Different Treatments

Attorney retainers come in two fundamentally different forms, and the compliance treatment is completely different for each. Getting this wrong is one of the most common trust accounting mistakes.

The Advance Fee Retainer

An advance fee retainer is a deposit against future work. The client pays you upfront; you earn the fee as you perform services. Until it's earned, it belongs to the client — and it must be held in your IOLTA trust account.

As you perform work, you earn portions of the retainer. Each time you transfer earned fees to your operating account, that transfer must be recorded on the client's ledger with a date, memo, and the amount earned.

The True Retainer (Availability Fee)

A true retainer — sometimes called an availability fee or engagement retainer — is paid to secure your availability. The moment the client pays it and you agree to represent them, the fee is earned. A true retainer does NOT go into trust. It goes directly into your operating account.

Your retainer agreement must clearly specify which type of retainer applies. Ambiguous language can result in the bar treating an availability fee as an advance fee — requiring it to have been held in trust.

Earned Fees Must Leave Trust Promptly

A common and underappreciated violation: leaving earned fees in your trust account because it's convenient. Once you've earned a portion of an advance retainer, those funds must be transferred to your operating account. Most bar rules treat leaving earned fees in trust as a form of commingling — even though it benefits the client rather than harming them.

Best practice: transfer earned fees at the same time you send the client an invoice. The client sees what was earned, and your trust account reflects only unearned funds.

What Your Retainer Agreement Should Include

• Whether the retainer is an advance fee or an availability fee
• How and when earned fees will be transferred from trust to operating
• How the client will be notified of each transfer (monthly billing is standard)
• What happens to any unused balance if the representation ends early
• The replenishment requirement, if applicable (i.e., how low the retainer can go before the client must add more)

Tracking Advance Retainers in IOLTATrusts

IOLTATrusts creates a sub-ledger for each client matter automatically. Retainer deposits are recorded as deposits to the client's ledger. As you earn fees and transfer them to operating, you record the disbursement on the ledger with a memo referencing the invoice or billing period.

The client can view their ledger through the client portal at any time — showing every deposit, every fee transfer, and the current trust balance. Disputes about retainer balances become rare when clients have real-time visibility.