create password protected folder

After recent Sequoia upgrade, I am having problems creating a password-protected folder/dmg. Before Sequoia I did this multiple times. I found a bunch of articles that describe the process and I think I am doing it correctly. When I get to the last step I Consistently see this error message: Creating folder disk image “Misc3.dmg”…

Operation failed with status 1: Operation not permitted

Operation failed…

I tried looking this message up but found nothing. I have admin privileges with this account.

What did I miss?