Allied General - Client Rulers

[Taedius]

No, this is not true. My client rulers became generals, conquered an area, built a level 4 goverment, and the next turn they became client rulers

This is my experience too, and I do it regulary for rp reasons. For example let a Greek general wth mainly Greek troops take a Greek city.

Could the issue in the OP be that the lvl IV building was already there? Seems weird to me anyway.