Investment banks often have conflicting roles. They sometimes act for

Ah, didn't think from this perspective, Thank you so much AndrewN for such a crystal clear explanation!

It's the details of the options that matters, got it!

Understanding the argument -
Investment banks often have conflicting roles. Fact/opinion
They sometimes act for a client company by raising capital from other investment institutions as advantageously as possible, but their analysts also sometimes send unfavorable reports on the financial health of companies for whom they are raising capital to other clients who wish to make investments. Fact
Analyses of companies’ financial health need to be unbiased if an investment bank is to achieve long-term success. - Conclusion. Unbiasedness is vital for long-term success.

Option Elimination - We need to find an option if adopted, that would hinder long-term success. So, what will hinder long-term success if they are biased? Yes. So, we need to find an option that leads to a biased view.

(A) Evaluating and rewarding the bank’s analysts on the basis of recommendations made by managers who are solely engaged in raising capital for clients - What's in the interest of managers who are solely engaged in raising capital for clients? Good reports. Bad reports may hurt their efforts to raise capital. So, If the promotion and bonus of the analyst depends on the recommendation of these managers, whom do they reward? The one who aligns with their interest? Right? Yes. So, the analysts may just send good reports. Does that lead to a basis? Yes. The argument shows that bias is not good for long-term success. So this is our answer.

(B) Using reports by the investment bank’s analysts to determine how best to raise capital for a client - This is a good practice. Nothing inherently wrong with this. It only becomes a problem if those reports are biased, but this option doesn't highlight any bias. Wrong.

(C) Sharing the task of raising capital for a client with other investment banks - It's good. No bias is highlighted here.

(D) Ensuring that conflicts between analysts and those who raise capital for clients are carefully mediated and resolved by impartial arbitrators - The very virtue that conflicts happen means they are not biased. Had the analyst been sharing all goody-goody reports, there would not have been any conflicts. Isnt it? Yes. So, this is the opposite of what we need.

(E) Monitoring the success or failure of analysts’ current predictions about how companies will perform financially, in order to determine the value of future predictions - This is good practice so that the analysts can fine-tune their predictions.