IOOF is offering one of its shares for every 3.73 AWM shares and its offer has been recommended by AWM's board.
The merger of the pair, which is expected to be completed in April next year, will create a group with more than $88 billion in funds under management, advice and administration.
The new entity will be 30 per cent owned by IOOF shareholder, with the remainder to be held by AWM shareholders.
The companies said the merger offers increased enhanced financial strength and more capacity to pursue a wider range of growth opportunities.
It is also expected to increase the earnings per share (EPS) for all shareholders and generate after tax synergies of $20 million in the first year.
"The merger will deliver substantial EPS accretion for both IOOF and AWM shareholders," IOOF chairman Ian Blair said.
The merger will be implemented by a scheme of arrangement with AWM shareholders set to vote on the plan in March or April next year.
"In a difficult operating environment for wealth managers, we expect that the transaction will realise immediate value for both sets of shareholders and put the merged group in a very strong market position," AWM chairman John Warburton said.
The new group will have an enhanced distribution network with more than 580 aligned financial advisers across Australia.
It will offer services including advice, distribution, funds management, administration, trustee services and asset management.
IOOF said there will be no impact to the operations of Perennial Investment Partners, which will remain a wholly owned subsidiary of IOOF.
Mr Blair will chair the board of the combined group.
Following the merger, AWM managing director Chris Kelaher will succeed IOOF managing director Tony Robinson head of the new group.
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