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At Home, Abroad

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Red hair and freckles will make you stand out in any crowd, but on the palm-treed, cobblestoned streets of San Juan, Puerto Rico, you might as well strap a blinking sign to your forehead that says, “Hi! I’m not from around here!” Given his fair-haired appearance, it’s not surprising that first-time visitors to Kurt Schindler’s planning firm in San Juan immediately address him in English; if they hazard a second guess as to his linguistic preferences, they’re more likely to try a “Guten tag!” than an “Hola!” But hola it is: While some advisors wax rhapsodic about “speaking the clients’ language”–discussing the clients’ hopes and dreams in the clients’ terms–Schindler means it literally. He speaks Spanish with his clients all day, every day.

And he loves it. The upstate New York native still exudes the perennial exchange student’s enthusiasm for speaking the local language, and he’s clearly acquired a taste for the local customs, lifestyle, and tropical climate. (Regarding the climate, it bears noting that my initial phone interview with Schindler nearly ended before it began. “How’s the weather down there?” I asked, peering out my office windows as frigid wind piled huge snowdrifts ever higher. “Oh, about 88 degrees, with a nice cool breeze coming in off the ocean,” he said, clearly trying not to laugh. Perhaps it would have been better not to ask.)

Schindler’s move to Puerto Rico in 1990 was initially a personal decision, not a business one. His wife, Sandra Ortiz, is originally from Puerto Rico, and has a large extended family on the island; by moving to San Juan, they were able to be close to her family, raise their children in a more laid-back (and bilingual) society–and enjoy those tropical breezes, too. But migrating south has also turned out to be a good business decision. “I’d say it’s been a wonderful career move for me, because I do enjoy the Latin approach to life–slowing down a bit–and I can use the Spanish that I learned,” says Schindler, 41.

And rather than being a barrier, the language seems to provide him with an instant connection with his clients. “It’s a wonderful way of breaking the ice with people: They look at me and ask me if I want to speak Spanish or English–thinking I’ll say English–and then I launch into Spanish; it just makes them very comfortable, even if they’ve been educated in the States and have been brought up bilingual,” he says. “I think part of it is that they just appreciate that someone is speaking their language.” Schindler must be doing something right; the firm has 110 clients and counting, and verbal communication with nearly all of those clients is conducted in Spanish. Interestingly, printed materials (with the exception of the firm’s Web site, which has been translated into both languages) are usually in English, however. That’s the case not because Schindler prefers it, but because the clients do. “It’s a unique combination, but because they’re so used to hearing and reading financial terms in English, and because some of the translations into Spanish are kind of cumbersome, they’re more comfortable with [having printed materials in English],” he says. “So while I’d sometimes like them to be in Spanish, it’s easier and more efficient to have them in English.” Many residents of Puerto Rico are fluent in English because their high school or college textbooks, particularly in areas such as math and finance, are printed in English, or because they get U.S. radio stations and TV channels in English, he says.

Cultural Differences

Schindler has always had a taste for Latin language and culture. During high school, he spent a year as an exchange student in Honduras; in college, he was a Spanish major at the State University of New York (SUNY) at Oswego, and spent nearly half his time elsewhere as an exchange student, once to Colombia and twice to Puerto Rico.

One of his favorite things about the Latin culture is its respect for family; clients readily understand that he wants his weekends and evenings for his children and extended family because they, as a rule, want the same thing. “I think in the States people tend to travel so much and lose touch with their families, so sometimes the relationships aren’t as close-knit,” he says. “But here, there’s more of a … ‘duty to family,’ I guess I would call it … so people do respect that.” Perhaps more important to the clients’ understanding, however, was that Schindler established the ground rules about weekends and evenings from square one. After spending many an evening and weekend at work while employed by IDS in the U.S. (from 1987 to 1990), Schindler knew what he didn’t want.

Another difference in his clientele is their interest in getting to know their business associates before signing on the dotted line. “It does take a little longer to get to know people, and they want to know you as a person, not just as a businessperson,” he says, noting that Puerto Rican clients who work for American companies and have thus acquired the American way of doing business are less likely to fit this mold. But in any culture, getting to know the client personally is “just part of good planning. You have to get to know what their fears and hopes and aspirations are, and you don’t get that in an office atmosphere; you get that out at lunch, or out on the golf course.” To ensure that clients feel at ease even in the office, Schindler plans to establish an informal “living room” in his office for client meetings, with comfortable chairs and a relaxed atmosphere.

Yet in many ways, Schindler and his clients in Puerto Rico are much like those in Peoria or Pittsburgh. Schindler begins his client relationships by sending out a questionnaire and a list of documents for the client to bring; he provides one initial no-obligation meeting, in which he outlines his services and fee-only pricing structure ($145 per hour, charged on a project basis, and/or an asset management fee that starts at 1% of assets and decreases to 0.25% of assets depending on the amount of assets); he meets with clients during three or four meetings before completing the client’s financial plan. He also has to spend time marketing his services: He writes articles for a local English-language newspaper and a local business publication, he purchases advertisements on an English-language radio station, and he appears on the radio station’s lunchtime call-in show once a month. When he first moved to the island, he also appeared on a local morning TV talk show as the financial guest. “After a while, it was hard to generate interesting topics on which to talk for three minutes twice a week,” he says, “but having come down here without a business network to tap into, it was a good launch pad for me.” These days, Schindler relies more on referrals from current clients, and hopes to beef up his referral network with other professionals to help his business grow.

Controlled Growth

Growth, yes, but not too much. Unlike some of his peers, Schindler doesn’t dream of a mile-long client list or a giant office bustling with dozens of staff. He’s quite happy, thank you, with the size of his firm, which has two principals (he has one partner, Carlos Urrutia, the firm’s investment analyst) and two support staff members. “We have a nice volume of clients coming in, and I don’t want to grow so much that we become a huge firm, because I like doing the planning part,” he says. “The marketing is fun, the client relations part is fun, but I also do enjoy doing the actual planning. So I don’t imagine we’ll grow so large that I’m unable to do that part any more.”

Such comments are even more interesting in light of the early history of his firm: When Schindler first came to Puerto Rico, he established his firm as a division of a local CPA firm. The partnership didn’t last, and he eventually bought out the CPAs and became an independent firm. Such a move might be akin to heresy in the eyes of many business consultants who love to toss around trendy terms like “synergy,” “ensemble firm,” and “bundled services.” “It’s tough if you’re used to being in charge of everything,” he says. “With too many professionals with independent minds–and I evenly spread that around–it just didn’t mesh well.” Still, all of the professionals involved remain on friendly terms and trade referrals regularly.

The Exception That Proves the Rule

One of the greatest challenges about doing financial planning in Puerto Rico is that it’s a United States territory–which means that for the purposes of taxes and estate planning, it’s sometimes like a U.S. state, sometimes like a foreign country, and sometimes just a very frustrating, enigmatic exception. Since most American financial publications and software documentation are written with the 50 states in mind, there’s very rarely such a thing as a “classic textbook example” when doing financial planning in Puerto Rico, says Schindler. “It does make things interesting,” he says wryly, and offers the following examples.

You can’t entirely disinherit your children in Puerto Rico, because of the territory’s “forced inheritance” rules. According to these rules, without a will, the deceased spouse’s half of the estate is given to all his children in equal parts. With a will, his half of the estate can be divided into thirds: One third for the children, divided into equal parts (the “forced” third), one third for the children divided in any way the parent wishes (the “improvement” third), and one third to anyone the parent wishes (the “free disposition” third).

Puerto Rico is a “community-property” region, for estate tax and distribution purposes. “Furthermore, if a person inherits money, say from an uncle or parent, those particular assets are not part of the community property estate; they belong to the recipient unless the recipient mixes the assets with the community property assets,” says Schindler. “Those assets will form part of the estate at the death of the owner, so conceivably children could inherit more from one parent than the other.”

If you were born in the U.S. but live in Puerto Rico, your estate is taxed under U.S. rules but distributed under Puerto Rican rules.

If you are born in Puerto Rico and move to the U.S., you’re immediately subject to U.S. estate tax rules. However, “if you were born in Puerto Rico, lived in Puerto Rico, but held assets in the U.S.,” says Schindler, “you would be treated as a non-resident alien for estate tax purposes, and the exemption allowed against your estate–the U.S. property–would only be $60,000.”

If a Puerto Rican resident owns U.S. securities, those investments are subject to U.S. taxes for the amount of income that exceeds the prorated share of the standard deductions. If a Puerto Rican resident holds only local investments, however, those investments are not subject to U.S. taxes.

Income is taxed locally, but not at the federal level–”albeit at higher rates,” notes Schindler. “We don’t pay federal taxes but our [local tax] rates are higher than those in the States.” The highest tax bracket in Puerto Rico is reached at $50,000 of AGI, and the rate is 33%. An alternative minimum tax applies on amounts over $75,000.

In Puerto Rico, the local equivalent of a 401(k) is an 1165(e). Contributions are limited to $8,000 annually (rather than $11,000), and total contributions cannot exceed 15% of the account owner’s compensation.

In Puerto Rico, you can contribute up to $4,000 to an IRA in 2004. However, if you hit the maximum contribution limit ($8,000) in an 1165(e) plan, no IRA contributions are allowed.

Capital gains are considered “long-term” in Puerto Rico after six months, rather than twelve.

Capital gains in Puerto Rico, even on U.S. assets, are not subject to U.S. capital gains taxes, only local taxes.

Quite Content, Thank You

Despite the complexities, Schindler isn’t ready to throw in the towel and move north. Puerto Rico’s economy is reasonably strong, he enjoys working in San Juan, and business is growing at a steady pace, he says. And thanks to a strong brokerage and banking industry and a growing number of financial advisors on the island (there are 13 other CFPs in Puerto Rico, according to the CFP Board), the public is starting to learn what financial advice is all about. “I believe at this point we are the only fee-only financial planning firm in Puerto Rico, and at first it was hard because [financial planning] hadn’t really been promoted here,” he says. “As other people have started doing [financial planning], albeit on the commission side, that generates interest in planning and helps us.” Schindler says that while most of the public associates financial planning with brokerage houses and banks, many clients come to his fee-only firm to have him evaluate the plans the brokers and bankers have proposed to them.

As a fee-only planner, Schindler says he’s often invited to do financial education seminars at local companies. “They hire us because we’re not selling anything, and they know they’re just going to get financial planning advice for their executives and managers,” he says. The firm also works through outplacement firms to provide financial advice to employees who are being laid off–a task that Schindler says is one of the most rewarding aspects of his work. “I think the biggest impact I’ve been able to make in the shortest time frame is through the outplacement program seminars. I’ve had people who went through a plant closing, came to one of my seminars, and then three years later, the next plant closes, and I see them at another seminar,” he says. “They’ve remembered me, and said, ‘Listen, we practiced what you told us, and this time we were ready for it–we were out of debt, and not nearly as worried.’ Professionally, it’s been very rewarding that way.”

“In general, I would say that financial planning is as necessary here in Puerto Rico as it is anywhere,” he adds, “and while on the one hand we’re in business to make money and provide a living for ourselves, it’s also great when we can help people figure things out and help them to financially better their lives.”

Choosing to locate his business in Puerto Rico has provided Kurt Schindler with both personal and professional rewards, but he says that perhaps the greatest benefit is the perspective it affords him. Living and working in another culture “gives you an understanding that there is more than one way to look at life; each has its own weight and validity, but neither is perhaps better–simply different,” he says. “And in a way, financial planning is just like this: Many times we are faced with two choices that appear to be equally valid. We must understand this, make a choice, and go forward.”

Assistant Managing Editor Karen Hansen Weese can be reached at [email protected].


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