External training: Meaning, Criticisms & Real-World Uses

What Is External Training?

External training refers to the process by which individuals or employees acquire knowledge, skills, and competencies from sources outside their primary organization. This type of instruction is a key component of Human Capital development, enabling professionals to stay current with industry trends, regulatory changes, and evolving best practices. External training programs can range from specialized courses and workshops to conferences, seminars, and Certification programs offered by educational institutions, industry associations, or independent training providers. The goal of external training is often to enhance an individual's professional capabilities, address specific Skills Gaps, or prepare for advanced roles, thereby contributing to both personal career progression and organizational effectiveness.

History and Origin

The concept of formal external training has evolved significantly alongside the increasing complexity and specialization of industries, particularly in finance. While apprenticeships and informal learning have existed for centuries, the modern emphasis on structured external education gained traction with the rise of formalized professions and the need for standardized knowledge. As financial markets grew and regulations became more intricate, the demand for specialized expertise that could not always be developed purely in-house increased.

A pivotal development for many financial professionals has been the establishment of mandatory Continuing Education requirements. For instance, the Financial Industry Regulatory Authority (FINRA), a key self-regulatory organization, mandates specific continuing education for registered persons in the securities industry to ensure they maintain up-to-date knowledge and skills. FINRA Rule 1240, for example, prescribes requirements for both a "Regulatory Element" and a "Firm Element" of continuing education, often fulfilled through a combination of internal and external programs⁴. This formalization underscores the recognition that continuous external learning is essential for maintaining competence and adhering to Regulatory Compliance in a dynamic environment. Beyond specific mandates, a broader societal understanding of the importance of skills for Economic Growth has been highlighted by international bodies like the Organisation for Economic Co-operation and Development (OECD), which developed the OECD Skills Strategy to help countries align education with labor market needs and maximize skill development³.

Key Takeaways

External training involves learning from sources outside an individual's or organization's direct control, such as universities or industry associations.
It helps address skill gaps, foster professional growth, and ensure compliance with industry standards and regulations.
Key benefits include access to specialized knowledge, networking opportunities, and exposure to diverse perspectives.
Organizations often invest in external training to enhance their workforce's capabilities, improve productivity, and support Talent Management strategies.
While costly, it can offer a high return on investment through improved performance, innovation, and retention.

Interpreting External Training

The effectiveness of external training is typically interpreted through its impact on individual performance, team capabilities, and ultimately, organizational outcomes. When evaluating external training, financial firms often look beyond mere attendance, assessing how newly acquired skills translate into practical application. For a Financial Advisor, external training might lead to a deeper understanding of complex investment products or new client relationship strategies. For a professional in Investment Banking, it could involve mastering advanced financial modeling techniques or gaining insights into emerging markets. The true interpretation lies in the observable improvements in efficiency, accuracy, decision-making, or innovation stemming from the learned material. Furthermore, the ability of employees to apply external training often signals an organization's commitment to Professional Development and a culture of continuous learning.

Hypothetical Example

Consider a hypothetical financial planning firm, "Evergreen Wealth Management," that specializes in retirement planning. A new complex regulation regarding inherited IRAs is introduced, which is beyond the current expertise of many of their financial advisors.

To address this, Evergreen Wealth Management decides to send five of its senior advisors to a specialized, three-day external training seminar conducted by a prominent financial education institute. The seminar covers:

Detailed Regulatory Review: An in-depth analysis of the new inherited IRA rules.
Tax Implications: Specific tax strategies related to these new regulations.
Client Communication: Best practices for explaining complex changes to clients.

Upon returning, these advisors are expected to:

Step 1: Integrate Knowledge: Apply the specific tax strategies and compliance protocols learned during the external training into their client interactions and financial plans.
Step 2: Disseminate Information: Conduct an internal workshop to share their new expertise with the rest of the team, acting as subject matter experts. This ensures broader Workforce Development.
Step 3: Update Practices: Work with the compliance department to update the firm’s internal procedures and client communication materials to reflect the new regulatory environment.

This external training allows Evergreen Wealth Management to quickly adapt to regulatory changes, ensure Regulatory Compliance, and maintain a competitive edge by offering expert advice on a complex and evolving topic, directly benefiting their clients.

Practical Applications

External training finds numerous practical applications across the financial sector, contributing to both individual career advancement and the strategic goals of firms.

Broker-Dealers and Compliance: Broker-dealers often rely on external training providers to help their registered representatives meet stringent Continuing Education requirements mandated by regulators like FINRA. This ensures that professionals remain current with evolving rules on sales practices, anti-money laundering, and ethical conduct.
Specialized Skill Acquisition: Financial institutions frequently send employees for external training to acquire niche skills. This could include training in advanced data analytics, artificial intelligence applications, cybersecurity, or complex derivatives valuation, which may not be cost-effective or feasible to develop entirely in-house. For instance, global trade professionals face emerging Skills Gaps that require expertise in logistics, finance, and technology, often necessitating specialized external programs.
²* Leadership and Corporate Governance: Senior leaders and board members may engage in external training to enhance their skills in strategic decision-making, Risk Management, or understanding new governance frameworks, especially those related to environmental, social, and governance (ESG) factors.
Succession Planning: As part of long-term succession planning, promising employees may be sent for external executive education programs to prepare them for higher-level management roles, broadening their strategic perspective and leadership capabilities.
Technological Adoption: With the rapid pace of technological change in finance, external training is crucial for equipping teams with the skills to utilize new trading platforms, financial software, or quantitative analysis tools. The Federal Reserve Bank of San Francisco, for example, emphasizes lifelong learning and provides access to various development opportunities, including in-house training and external platforms, to ensure employees stay current with necessary technical skills.
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Limitations and Criticisms

Despite its numerous benefits, external training is not without limitations or criticisms. One primary concern is the cost. External programs, especially those from reputable institutions or industry experts, can be significantly more expensive than developing similar content internally, encompassing tuition fees, travel, and time away from work. This cost can become a barrier for smaller firms or individual professionals.

Another limitation is the potential for content to be too generic or not directly applicable to a specific organization's unique operational nuances. While an external program might cover broad industry best practices, it may not address the specific tools, culture, or client base of a particular firm. This can lead to challenges in transferring theoretical knowledge into practical, on-the-job application. Furthermore, measuring the return on investment (ROI) for external training can be difficult. While improved employee morale and skill enhancement are often observed, quantifying the direct financial impact on profitability or revenue generation can be elusive, making it harder to justify significant investments. The effectiveness can also depend on the quality of the external provider and the engagement of the participant. If the training is not engaging or the provider lacks deep industry relevance, the value derived may be minimal.

External Training vs. Internal Training

The key distinction between external training and Internal Training lies in the source and delivery of instruction. Internal training, often referred to as "on-the-job training" or "in-house training," is designed, delivered, and managed by an organization's own employees or departments. It typically leverages existing internal expertise, focuses on company-specific processes, systems, and culture, and often involves shadowing, mentoring, or workshops conducted by internal subject matter experts. This approach is highly customized, cost-effective for large groups, and directly addresses the immediate operational needs of the firm.

In contrast, external training involves engaging third-party providers, such as universities, specialized training companies, or industry associations, to deliver educational content. This type of training typically brings in outside perspectives, cutting-edge research, and specialized knowledge that may not exist within the organization. While generally more expensive and less tailored to specific internal processes, external training offers access to broader industry insights, new methodologies, and professional networking opportunities. The confusion often arises when organizations combine both approaches, using external providers for foundational or highly specialized knowledge and then reinforcing and contextualizing that knowledge through internal application and practice.

FAQs

Q1: Why do companies choose external training over internal training?

A1: Companies often opt for external training to access highly specialized knowledge, obtain industry certifications, expose employees to diverse perspectives and networking opportunities, and ensure compliance with external regulatory requirements. It can be more efficient than developing complex, specialized curricula in-house, especially for niche skills or rapidly evolving areas like new financial technologies or Regulatory Compliance.

Q2: What are the main benefits of external training for financial professionals?

A2: For financial professionals, external training provides access to advanced expertise not always available internally, helps them stay updated on industry trends, new financial products, and regulatory changes, and can lead to valuable Certifications that enhance career prospects. It also offers opportunities for Professional Development and networking with peers from other organizations.

Q3: How is the effectiveness of external training measured?

A3: Measuring the effectiveness of external training can involve several metrics, including pre- and post-training assessments of knowledge and skills, feedback from participants and their supervisors, and observation of changes in job performance or productivity. For some programs, the achievement of specific certifications or the ability to apply new skills to solve business problems provides tangible evidence of success. Firms also consider the impact on employee retention and overall Human Capital improvement.