The business, which will target affluent customers, will be 50.1% owned by Lloyds, with Schroders holding the balance.
The bank will transfer approximately £13 billion of assets and associated advisers from its wealth management business to the unit.
As part of this, Lloyds will receive up to a 19.9% stake in Schroders' UK wealth management business, in a move which will also provide the bank's high net worth customers access to Cazenove Capital's wealth management proposition.
The joint venture is scheduled to launch by the middle of next year. Antonio Lorenzo (pictured top), chief executive of Scottish Widows and group director of insurance and wealth, is to chair the business, while James Rainbow (pictured below), Schroders' co-head of UK intermediary, will be chief executive.
Lorenzo said: 'The unique combination of two of the UK's strongest financial services businesses will enable us to create a market-leading proposition which will benefit customers.
'The aim is to become a top three UK financial planning business within five years, given the significant growth opportunities in the financial planning and retirement market combined with the new company's ambitious medium term growth strategy.'
£80 billion Schroders boost
As part of the alliance, Schroders has been appointed investment manager of £80 billion of Scottish Widows' and Lloyds' insurance and wealth assets, a figure which includes the £13 billion transferred to the advice joint venture.
The award comes after Scottish Widows pulled £109 billion worth of assets from Standard Life Aberdeen at the start of the year on competition grounds.
Lloyds will also transfer approximately £400 million of existing private client assets under management to Schroders' UK wealth management business.
Schroders chief executive Peter Harrison said: 'Wealth management is a strategic priority for Schroders.
'In combining our award-winning technology and world-class investment expertise with Lloyds' significant client base and digital capabilities, we are creating a strategic partnership which is exclusively focused on the evolving needs of UK savers and investors.
'I am also delighted that we have been entrusted to manage £80 billion of assets for Lloyds' and Scottish Widows' clients.'
Lloyds and Schroders also plan to explore and potentially develop other strategic opportunities. These include investment propositions and advice for Lloyds' retail customers, for which Schroders would provide active asset management services.
Commenting on the tie-up, Lloyds chief António Horta-Osório said: 'I am delighted to be announcing this exciting partnership with Schroders and the creation of a new market leading wealth management proposition.
'This provides a strong platform for growth and is a further step in the delivery of our strategic objectives.'
Lloyds advice return
Lloyds has made no secret of its desire to return to advice after exiting the market following the introduction of the retail distribution review in 2012.
The bank was also under extreme regulatory pressure after its £20 billion bailout by the government at the height of the credit crunch in 2009.
At the start of this year, the bank signalled its intent, saying it aimed to attract £50 billion of financial planning and retirement assets by 2020.
At the time, Horta-Osório (pictured below) promised the bank's new proposition would be 'very different' this time around.
'We have a very different culture and approach in terms of what you were used to 10 years ago,' he said at the time.
In August, Lloyds said it was looking to re-introduce financial planning through its branches as part of a £3 billion investment strategy focused on growing the group's pension and advice business.