Scottish Widows and Lloyds Banking Group’s Wealth businesses have given notice to terminate their partnership with Standard Life Aberdeen which manages over £100bn of Scottish Widows and Lloyd’s Bank client funds.

Scottish Widows and Wealth entered into a partnership with Aberdeen following the sale of Scottish Widows Investment Partnership (SWIP) in 2014. This included long-term contracts for the management by Aberdeen of over £100bn of assets on behalf of Scottish Widows and Wealth, says Scottish Widows.

These contracts enabled Scottish Widows and Wealth to terminate the contracts in the event that Aberdeen was subject to a change of control. Because Aberdeen has recently completed a merger with Standard Life, “a material competitor of Scottish Widows and also of Wealth” Scottish Widows has decided to end the deal.

At the time of the merger being announced, Scottish Widows and Wealth agreed to delay a decision on termination for six months following the merger, during which time the parties agreed to discuss in good faith ways to build a “successful relationship and address the competition issue.”

However, as no agreement has been reached, Scottish Widows and Wealth have decided to terminate their partnership agreements with Standard Life Aberdeen and to review their long-term asset management arrangements. Scottish Widows says that Aberdeen has delivered “good service and performance” and Scottish Widows and Wealth would welcome its participation in the review if Standard Life Aberdeen was able to resolve the competition issue.

Antonio Lorenzo, chief executive of Scottish Widows and group director of Insurance & Wealth, said: “Given the merger of Standard Life and Aberdeen has resulted in our assets being managed by a material competitor, it is now appropriate to review our long-term asset management arrangements to ensure they remain up-to-date and that customers continue to receive good service and investment performance. Therefore, we will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109bn of assets.”

Scottish Widows says there are no immediate changes for customers. Following completion of the review, Scottish Widows and Wealth expect to implement the new arrangements by the end of H1 2019.

Laith Khalaf, senior analyst, Hargreaves Lansdown: "This is a blow for Standard Life Aberdeen, but has been on the cards ever since the merger. Standard Life and Scottish Widows are long standing rivals, and the prospect of one group managing the fund range of the other was never going to sit entirely comfortably in the corridors of power in Edinburgh.

"Losing this book of business would strike a sour note for the Standard Life Aberdeen merger, and undermines some of the rationale for joining forces, which was built on scale. However while almost a fifth of Standard Life Aberdeen’s assets look like they might be walking out the door, this only equates to 5% of revenues, as these investment services are relatively low margin.

"There’s a possibility Standard Life Aberdeen may retain this chunk of assets, subject to further negotiations. There’s also an outside chance Lloyds may look to rebuild its own investment management capabilities, as it launches a new three year strategy next week." 

 • Editor's Note: Story updated 11.50 am to add Laith Khalaf comment.