What is the primary role of a principal trade by an investment adviser?

The primary role of a principal trade by an investment adviser involves selling securities directly to clients. In this type of trading, the adviser acts as a counterparty to the transaction, holding the security in inventory and selling it to the client at the current market price. This method allows the adviser to provide clients with access to securities while effectively managing inventory and pricing.

Principal trading differs from other trading arrangements, where an adviser might act solely as a broker or intermediary facilitating trades between buyers and sellers without taking ownership of the securities. In a principal transaction, there is a direct relationship where the adviser sells the securities from their own account to the client. This can sometimes offer the client a streamlined process for executing trades, but it also requires transparency and disclosure regarding any potential conflicts of interest, as the adviser stands to gain from the transaction.

In contrast, other roles such as acting as an intermediary, facilitating purchases without commissions, or securing better trading rates relate more closely to broker-dealer functions rather than the direct selling nature of principal trades.