When the leader in peer to peer lending admits to misleading its investors and fires its CEO, concerns naturally arise about the entire fintech space. Are other problems lurking below the surface? Who can we trust?

Like any business sector, fintech includes many companies that pursue a variety of different strategies and espouse a range of corporate cultures. The fact that these businesses are new does not diminish their credibility. After all, some of our oldest and most established financial institutions were the worst offenders in the subprime mortgage crisis. Credibility comes from the people running the business, not the date of incorporation.

The part of Lending Club’s business that got into trouble has nothing to do with technology. It’s the old school business model of originating loans to resell them at a profit while retaining no risk. Here is an amazingly prescient quote from Renaud LaPlanche, Lending Club’s fired CEO, taken from his letter to the Treasury Department opposing proposed risk retention rules last fall:

“Fidelity and T. Rowe Price are not required to retain a percent of every investment they make or recommend to their clients because there is an inherent alignment of interest: If their clients earn disappointing results, they will pull their assets out, much as a disappointed Lending Club investor would,”

LaPlanche completely misses the point that Fidelity and T. Rowe Price have built huge businesses based on investor confidence because their business model rewards long term performance. Their profitability comes from building assets under management, not from marking up an asset they have just originated. Businesses that are based on gains from sales and securitizations are under huge pressure to keep the machine running. When the machine is clogged with unsold inventory, the temptation is there to move the inventory through any means possible.

At CAPFUNDR we firmly believe that our interests should be aligned with our investors’ interests. Investors are migrating towards fee only advisors because they recognize that their interests are better aligned and this will lead to better advice. The same principle applies to online real estate investing.