From my experience, there are some customers who just happily take good advice, some who can be steered towards doing what's best for them, and then there are those where you just have to admit defeat and give them what they want rather than what is best for them.
Reminds me of a small tehcnical support customer of ours - an old fashioned company who are struggling to find a new customer-base as their old ones are dying out and their sales team is small and not too effective. I even offered these guys some free
SEO to give them a boost and they weren't interested, and yet they'll pay us for a support contract every month that they barely ever use!
Anyway, you're circumstances are quite different since you have a stake in this. Maybe put together a project plan or feasibility study showing the benefits. You're only moving from
SEO to SEM, so its not really such a big leap, and
SEO is a continual process not a one off project, so you can assure your boss that
SEO isn't going to stop just because you're branching out more.