Do you charge a retainer fee or require an advance payment in some cases?
If so, a brand-new ABA ethics opinion should be mandatory reading.
ABA Formal Opinion 505, handed down in early May, addresses the professional and ethical obligations that arise when a client pays in advance for legal work to be performed in the future.
“Formal Opinion 505 points to the ABA Model Rules of Professional Conduct and applications of model rules related to fees and safekeeping of others’ property to explain how lawyers should handle advance fees paid by individual clients, usually for a single legal matter that will not recur on a regular basis,” says the ABA in this press release. “These matters could include divorce, defense of criminal charges or civil matters not handled on a contingent fee basis.”
One industry observer suggests the opinion could be an ethical minefield, especially for law firms that use a pay-in-advance subscription legal services model.
As a general rule of thumb, ethics authorities disfavor nonrefundable fees.
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True Retainer vs. Advance Fee
ABA Formal Opinion 505 says true retainers are rare and unusual.
“[A] retainer is often conflated with an advance fee,” says the ABA. “The former should not be construed as a ‘payment for the performance of services, but rather is compensation for the lawyer’s promise of availability … (and) is not an advance deposit against future legal services.’”
A “true” retainer fee – sometimes called a general retainer or availability retainer – is an advance payment deemed fully earned on acceptance, say, the first of each month. These days, true retainers are relics from a bygone era. Few clients are willing to pay for the privilege of being able to call on their lawyer – and be billed further – that month.
Three hypothetical divorce cases are used in ABA Formal Opinion 505 to examine when a lawyer might tell a client that the prepaid fee was nonrefundable. In most cases, the opinion suggests, doing so would violate the model rules.
“We offer the following suggestions in relation to the matters addressed in this opinion. Use plain language,” it said. “Thus, instead of ‘retainer’ say ‘advance’ and explain that it is a ‘deposit for fees.’ Explain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen.”
Read the full text of ABA Formal Opinion 505 here.
Read this ABA press release on ABA Formal Opinion 505
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