Putting a “systemically risky” label on mutual funds, hedge fund advisors and other asset managers could add to costs and make some of the companies uncompetitive, an industry official said Wednesday.

“Its shareholders may have very strong incentives to invest elsewhere,” Paul Stevens, president of the Investment Company Institute, said at a Senate Banking Committee hearing.

He also warned that a label—a Systemically Important Financial Institution (SIFI) designation that essentially designates a financial entity as "to big to fail" without hurting the economy—would force asset management companies into troublesome regulatory conflicts because of the Federal Reserve’s direction on how to manage its portfolio and the SEC’s fiduciary mandate.

“This is not a theoretical concern,” he said. “In the aftermath of the financial crisis, some bank regulators vocally criticized fund managers for acting to protect their investors from financial loses by not maintaining short-term investments with banking institutions that were at risk of failure. The priority of the bank regulators was not protecting the interests of the fund investors, but propping up failing banks.”