Does the client have Adobe Professional or Adobe Standard installed on their workstation? I've seen a similar issue in PFx Engagement where we couldn't password protect a client document we were e-mailing because Adobe, by default, was either assigning a password to the document or preventing the user from changing the password.
If so, open the document in Adobe and go to Advanced > Security > Manage Security Policies and modify the Encrypt with Password property to allow you to set a password for the document. If you can't create the document, open Adobe Standard or Pro and edit the Encrypt with Password property to allow you to save the passwordfor the document.