There is no direct path to achieve this.
Currently the client setting for Software Updates, we have the option "Enable software updates on clients" set to yes. Seems that in what research i have done that this should be set to no. Is this correct?
Why would you set this to no? That does exactly what it says: disables software updates completely.
The setting you reference still requires the client to communicate with an MP and SUP so will not achieve your goal.
Have you reviewed using a Cloud Management Gateway (CMG) or Windows Update for Business (WUfB)?