Standard Life said it was “disappointed” at the decision, which leaves it booking a £40 million charge in its 2017 accounts.
Lloyds blamed competition issues created by the merger of Aberdeen and Standard Life last year.
Shares in Standard Life Aberdeen dropped as much as 10 per cent at one stage after the announcement, before settling around 5 per cent lower in morning trade.
Lloyds and Standard Life Aberdeen have been unsuccessful in resolving the competition issues created by the asset management tie-up last year, despite holding talks for the past six months.
Antonio Lorenzo, chief executive of Scottish Widows and group director of insurance and wealth at Lloyds, 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.”
But Scottish Widows added that Aberdeen had “delivered good service and performance” and could take part in the review if it was “able to resolve the competition issue”.
Keith Skeoch and Martin Gilbert, joint chief executives of Standard Life Aberdeen, said: “We are disappointed by this decision in the context of the strong performance and good service we have delivered for LBG (Lloyds Banking Group), Scottish Widows and their customers.
“We will be discussing the implications of this with LBG and Scottish Widows.”
The investment management deal will end after a 12-month notice period, as required under the original agreement between Aberdeen Asset Management and Lloyds.
Aberdeen took on the deal to manage the £109bn of assets when it bought Scottish Life Investment Partnership from Lloyds in 2014.
But there was a clause allowing Lloyds to end the mandate if Aberdeen merged with a competitor – and this was triggered by last summer’s £11bn tie-up between Standard Life and Aberdeen Asset Management, creating Europe’s second-biggest fund manager.
Standard Life Aberdeen said that despite the size of the contract, it represented less than 5 per cent of its 2017 revenues.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said it was a “blow” for Standard Life Aberdeen.
He added: “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 per cent of revenues, as these investment services are relatively low margin.”