St James's Place was set up in 1991 under the name J Rothschild Assurance and joined the stock market in 1997 following a reverse takeover of St James's Place Capital.
HBOS, which was acquired by Lloyds in 2009, secured a 60% stake in the business in June 2000.
The wealth manager has around 140,000 customers and is listed in the FTSE 250 Index with around £35 billion of client funds under management.
Lloyds said the stake reduction was part of its strategy to simplify the group and focus on its core customer franchise. It will continue to have representation on the St James's Place board but will no longer consolidate the company's results into its accounts.
The banking group said: "Lloyds continues to be supportive of the St James's Place management team, which will remain unchanged as a result of the placing."